Total commercial real estate investment volume in the Greater Toronto Area was $4.6 billion in Q4 2023, up from $4.1 billion in the previous quarter and $3.8 billion a year earlier.
That was perhaps the most welcomed news found in Avison Young’s new Greater Toronto investment review Q4 2023 report.
“We have been progressing through a more stable marketplace as a result of a number of factors, most particularly the steady rise in Government of Canada bond yields since October 2021,” Avison Young capital markets principal Richard Chilcott told RENX in an email interview.
“October 2023 saw the highest yields for many years and a drop in yield, together with a more stable outlook, has given investors a foundation upon which to price and deploy capital.”
Full-year sales volume of $20.4 billion was down eight per cent year-over-year, but still higher than any past year except the record-setting 2021 and 2022.
Industrial
There were 161 industrial transactions in the fourth quarter, accounting for 36 per cent of total transactions.
The $2.3 billion in sales during the quarter pushed total 2023 industrial real estate investment volume to a new high of $10.4 billion, smashing the previous record of $7.6 billion set in 2021.
Record-high investment activity for the industrial sector demonstrates these assets’ ongoing appeal while buyers adapt to a slight increase in availability and slower rental rate growth in what remains a tight leasing market.
The biggest Q4 industrial transaction was Oxford Properties’ $990-million sale of a 75 per cent share in its Brampton Business Park and Vaughan Industrial Park properties to San Francisco-based global alternative asset management firm TPG.
Retail
There were $1.1 billion in retail transactions in the fourth quarter.
The largest was LaSalle Investment Management acquiring a 49 per cent share in Vaughan Mills shopping centre from Ivanhoé Cambridge for $470.16 million as part of a syndication process.
While the number of retail properties that changed hands in the GTA in the fourth quarter and for the entire year was second only to industrial, the supply of desirable necessity-based retail assets is still less than the demand as many owners are holding onto these properties.
“Industrial and retail assets continue to be in high demand from a broad investor community,” Chilcott observed.
“Pent-up demand with a clarity as to future performance allowed for a narrowing of the bid-ask spread and transactions naturally followed.
“The other asset classes are taking longer to establish broad demand while the vendor community remains unwilling to accept perceived opportunistic pricing.”
Industrial, commercial and investment land
There were $598 million in industrial, commercial and investment (ICI) land transactions in the fourth quarter.
The biggest fourth-quarter transaction was Times Group’s acquisition of approximately 80 acres at 3143 Nineteenth Ave. in Markham for $68 million.
The 2023 total of 6,803 acres of ICI land sold was down 46 per cent year-over-year while the number of transactions decreased by 55 per cent to 271.
The appeal of ICI land has waned as potential developers find themselves in an environment with higher interest rates and holding costs, rising construction costs and less certainty around returns on their investment.
This returned activity to more normal levels compared with the exceptional volumes of the previous two years.
Office
There were $299 million in office transactions in the fourth quarter.
No major downtown Toronto office assets changed hands in the quarter, resulting in the low sales volume.
The largest transaction of the quarter was a $26.15-million acquisition of an office property at 1295 N. Service Rd. in Burlington by a numbered company registered in Ontario.
Total office transaction volume was $3.1 billion in 2023, down 19 per cent year-over-year despite receiving a big boost from Allied Properties REIT’s third-quarter sale of its data centre portfolio for $1.35 billion to Japanese telecommunications firm KDDI Corporation.
Multiresidential
There were $230 million in multiresidential transactions in the fourth quarter.
While investment activity in the sector was up nine per cent quarter-over-quarter, the full-year total of $1.3 billion was down 53 per cent year-over-year and the lowest annual total since 2016.
Uncertainty around the potential for rising interest rates earlier in 2023 resulted in a significant reduction in investment volume as buyers’ deferred decision-making pushed many deal closings beyond the end of the year.
The biggest transaction of the quarter was District Property Trust’s $69.8-million acquisition of an apartment building portfolio.
Increasing optimism for more transactions
“We expect all asset classes to offer more assets both on- and off-market,” Chilcott said as he looked ahead to 2024.
“Private and institutional capital is engaging with the marketplace and we expect a pickup in volume for all asset classes through the year.”
A stabilization in interest rates is expected to lead to greater investor confidence in structuring transactions and a resumption of more normalized deal volumes.
“The market has adjusted more quickly and has shown more resilience than many commentators have noted,” Chilcott said.
“The willingness of buyers and sellers to come to terms so quickly is a testament to the availability and flexibility of capital in the Canadian real estate sector.
“Some challenges continue to be worked through, but perhaps we have already returned to a more normalized marketplace with trailing asset classes finding their equilibrium and pricing throughout the year to come.”
Senior executives strike optimistic tone when looking ahead at 2024 at RealCapital conference
The worst of the commercial real estate downturn appears to be over and, while there are still challenges ahead in the Canadian market, a sense of optimism continues to emerge.
That was the impression from senior real estate executives who offered perspectives on fundamentals, trends and strategies during the closing roundtable at the recent RealCapital conference at the Metro Toronto Convention Centre.
Resiliency and finding opportunities within the various markets have been the keys for many of these company leaders.
“Credit has been the shining star for us in the last year-and-a-half,” said Randy Hoffman, Oxford Properties’ executive vice-president of North America investments.
He highlighted Oxford’s investment in a variety of debt positions — including first mortgages and mezzanine investments across markets and sectors — which has been a growing part of the business since it was launched almost 15 years ago.
“It’s been generating some great returns for us.”
Oxford Properties Group is owned by OMERS, a defined benefit pension plan with $128.6 billion in net assets across a global portfolio of public market, infrastructure, private equity, venture capital and real estate investments.
Hoffman said his company’s parent expects its portfolio to generate high single-digit returns.
Ontario Teachers’ Pension Plan’s new operating model
Ontario Teachers’ Pension Plan (OTPP) owns Cadillac Fairview and announced last June an evolution of its operating model. OTPP has established an in-house real estate group that includes Cadillac Fairview’s global team of 37 investment professionals.
OTPP is focusing on global real estate investing and portfolio management. Cadillac Fairview manages the growth, diversification and densification of its Canadian portfolio and provides real estate services to OTPP.
OTPP’s real estate portfolio, including Cadillac Fairview assets, was valued at $29.3 billion as of June 30, 2023.
Pierre Cherki became OTPP’s executive managing director of real estate in January after spending most of his career at DWS Group, a German alternative investments manager with a global real estate portfolio. He has also been a member of Cadillac Fairview’s board of directors since 2022.
“We need diversification and therefore we will continue to invest in non-Canadian markets,” Cherki explained, noting an emphasis on industrial, multifamily and data centre properties, as well as alternative asset classes, in Canada and in other parts of the world.
“But there is no doubt in my mind that Canada will continue to be by far the largest part of our investment portfolio.”
Canada is an attractive place to invest
Nearly $17 billion of Blackstone’s nearly $600 billion global real estate portfolio is invested in Canada, and the Canadian business is growing.
Blackstone managing director and head of Canada real estate Janice Lin said the country is an attractive place to invest due to its growing population, a well-educated and high-quality workforce, stable financial and government systems, and supply challenges in most real estate asset classes.
Hazelview Investments chief executive officer Ugo Bizzarri said his company raises “a fair bit of capital” from foreign investors for many of the same reasons Lin had outlined.
Lin said asset classes such as data centres and student housing are “very nascent relative to many other places in the world, especially the U.S., which is a really interesting proposition.” She’s trying to figure out how to incorporate those assets at scale into Blackstone’s Canadian portfolio.
“I think what takes Canada from good to great is more foreign capital investing in our market,” Hoffman said. “Taking this from a market where a $500-million transaction is large and shallowly bid versus New York and London, where it is average and deeply bid, will take this market from good to great.”
Housing shortage will remain a problem
RioCan REIT chief operating officer John Ballantyne, who moderated the discussion with RBC Capital Markets Real Estate Group managing director Nurit Altman, noted there are shortages of both housing and retail in Canada.
The Canada Mortgage and Housing Corporation has said 3.5 million new homes must be built by 2030 to restore affordability and CIBC World Markets deputy chief economist Benjamin Tal had said earlier in the day that number is actually much higher.
While Hazelview launched six multifamily projects last year and plans to launch six more this year, Bizzarri said even that lower 3.5-million-home goal won’t be reached. He believes housing affordability will remain a major issue and the situation could worsen.
Bizzarri thinks all levels of government should work together to try to solve the problem and emphasized that more tradespeople are needed among immigrants.
“Unfortunately, there’s no cure,” Bizzarri said. “It’s going to take 10 years of being very aggressive on the supply side to fix the affordability issue that we’re seeing in Toronto.”
Cherki and Lin emphasized this problem isn’t unique to Canada and is ongoing in cities around the world.
Office to multifamily conversions
Hoffman reiterated a well-known industry fact: a wide-scale solution won’t be found in converting office buildings to multifamily uses, because such conversions are difficult and expensive.
Altman pointed out that, despite slumping office building prices in Toronto, Vancouver and Montreal, they’re still too valuable to convert.
Hazelview has done three conversions and Bizzarri said he doesn’t want to do three more. In most cases he believes it would likely be a better option to tear down an existing office building and replace it with a purpose-built multifamily building.
Looking backwards and forwards
Although some major deals were transacted last year, Altman said volume was down about 30 per cent across Canada. She asked the panellists about the challenges and opportunities they faced last year and their outlook moving forward.
Lin believes the inflation of recent years is largely behind us, which should create stability, and she’s optimistic about the opportunities that will present themselves to Blackstone this year.
“We will just continue to lean into the sectors we like the most because we’re investors throughout cycles and we’re investors with a longer-term view,” Lin said. “We look at where supply and demand are today, as well as over two, three, five and 10 years into the future.”
San Francisco-based global alternative asset management firm TPG acquired a 75 per cent stake in Oxford’s Brampton Business Park and Vaughan Industrial Park, which combine to encompass about 5.1 million square feet, in a December transaction that valued the fully leased portfolio at $1.3 billion.
Hoffman said Oxford didn’t set out to sell the portfolio but received interest from TPG. Oxford wanted to keep a piece of the action and TPG realized the value of retaining the company’s platform and people involved, so a deal that pleased both sides was struck.
“The thing that I found to be the most difficult component of the transaction was trying to procure financing,” Hoffman said.
Alternative asset classes including data centres, self-storage and student housing may provide opportunities for Oxford this year, Hoffman noted.
“Real estate fundamentals in Canada are very, very strong in multifamily, industrial, retail and even some office,” said Bizzarri.
Plan Calls for Luxury Hotel Rooms and Condominiums
Toronto-based real estate company Freed Developments is planning what it says is an $800 million skyscraper in the downtown core that will include condo units and high-end hotel rooms.
The Freed Hotel and Residences tower at Adelaide and Duncan, just west of the University, will be designed by Chicago-based Adrian Smith + Gordon Gill Architecture, known for the Jeddah Tower in Saudi Arabia and the Central Park Tower in New York.
The plan includes 100 luxury hotel rooms and 400 condominiums with a sky bar and restaurant on the 63rd floor, a boutique spa, and a 10,000-square-foot Katsuya restaurant on the second floor.
Sam Nazarian’s SBE, a hospitality company that develops, manages and operates restaurants, lounges and nightclubs, is behind the first Katsuya restaurant in Canada. This will be the 12th location globally.
The development is expected to launch in the fall of 2028.
“This project is a testament to my profound love for Toronto,” said Peter Freed, founder and chief executive of Freed Developments, in a statement.
Freed Developments has a 30-year track record in Canada’s largest city, specializing in condominium developments, food and beverage ventures and hotels and resorts.
Nazarian is the founder of SBE. In 2020, he sold the remaining 50% of his hospitality brand and management platform, which included over 100 hotels, more than 150 restaurants and lounges and luxury residential sales to Accor. He had sold a 50% stake in 2018.
The chairman and CEO of SBE has been focusing on the the company he founded in 2020 known as C3, Creating Culinary Communities. C3 is focused on a new way to approach food halls, ghost kitchens and mobile delivery via culinary talent and technology.
The Freed Hotel and Residences is scheduled to begin sales in March 2024 and will be located at 240 Adelaide Street West. Units will range from 270 square feet to over 9,800 square feet.
Analysts Cite Cause for Optimism, Even As They Acknowledge Possibility of More Rate Hikes
Canada’s commercial property investment landscape shows some signs of what analysts say is slow improvement after the Bank of Canada raised interest rates to 5% last July.
Some real estate brokerage analysts are finding cause for optimism in the growing spread between capitalization rates and borrowing costs in the fourth quarter as a recent decline in rates has offered investors some room to maneuver.
But the findings in a Colliers report also warn that long anticipated Bank of Canada rate cuts are not certain and that further rate raises remain conceivable as “persistently high inflation, especially for staples like food and housing, have some analysts even suggesting further hikes are possible.”
Colliers touts itself as Canada’s largest commercial real estate services firm. It focused on the situation in 12 major Canadian urban centres in its 22-page report.
The authors note investors can expect some challenging times early this year, notably in hospitality, as well as for most of the apartment and retail markets, while about half of industrial markets face flat cap rates indicating a lack of increase in projected annual yields.
As for bright spots, Colliers notes Canada’s 5.8% unemployment rate has remained significantly lower than in past recessions, while a rapidly increasing population is expected to prove economically beneficial for some assets, including housing and industrial space. Owners of grocery-anchored retail can also expect to be left undamaged by the challenging economic conditions.
The report broke down certain situations in Canada’s urban areas.
In Toronto industrial and multifamily showed strength in the fourth quarter, while grocery-anchored properties also attracted investors. Industrial vacancy rates in the greater Toronto area increased slightly to over 1%, and asking rents dropped slightly.
Montreal’s commercial real estate had some softening in the industrial sector, where vacancy rates have risen to over 3%, as many investors are standing on the sidelines until financial conditions improve.
Vancouver posted almost no large transactions in 2023 until a busy fourth quarter. Cap rates have remained historically low for the urban area.
Calgary’s cap rates increased due to high demand for housing, while retail also remained strong. The Calgary office sector remains a weak point.
Edmonton is also undergoing a population increase that is propelling multifamily demand. The report expressed optimism for Edmonton retail properties as well, and it projected positive cap rates.
Ottawa saw few major transactions, while some major national multi-family owners sold off mid-sized and large-sized assets in 2023.
Winnipeg showed positive results in the industrial sector but a dearth of transactions made it difficult to determine a larger trend.
Halifax’s industrial real estate sector slowed while suburban office space showed some strength.
Quebec City’s industrial property sector posted positive results, as did Moncton, but both were hampered by a struggling office sector.
City Accounts for 56% of All Non-Canadian Property Purchases Since 2020
Over the past four years, 35 cents of every dollar spent by foreign real estate buyers went to purchase industrial assets in the Greater Toronto Area.
Across all four asset classes, Toronto accounted for 56% of all foreign real estate investment since 2020. Montreal was a distant second, accounting for 17% of foreign real estate acquisitions.
Across Canada, foreign buyers have been targeting industrial assets, thanks in part to several large portfolio deals in recent years, including the $5.9 billion Dream Industrial REIT and GIC’s purchase of Summitt Industrial Income REIT in early 2023. GIC is a Singapore sovereign wealth fund.
One outlier has been Calgary. In this market, office transactions dominated thanks to the sale of The Bow for $1.2 billion in 2021. The buyer in this transaction was a U.S. private equity real estate firm, Oak Street Real Estate Capital, which purchased the five-star trophy asset as part of a portfolio deal that included three smaller offices in Mississauga, Ontario. The reported capitalization rate on the transaction was 7.7% and the offices were 100% leased at the time of sale. However, excluding this sale, industrial would have comprised most foreign real estate purchases.
In Toronto, the foreign office transactions included the KDDI purchase of Allied REIT’s downtown office data centre portfolio. The three-asset portfolio sold for over $1.3 billion, accounting for nearly half of the recorded office purchases by foreign buyers in the market. KDDI is a Japanese telecommunications corporation. Allied, a Canadian office REIT, likely decided to sell these assets to raise liquidity in a difficult environment for the nation’s office sector.
In Ottawa, retail attracted greater interest foreign interest compared to other markets. This may be due to both the healthy demographics of the city as well as the importance of the public sector in the local economy, which should support employment — and therefore consumption — even as Canada’s economy continues to slow. The foreign retail transactions included a $42.5 million sale of two neighbouring assets along Cyrille Road near Highway 417 in March 2022. The buyer was U.S. warehouse retail giant Costco. This one transaction accounted for 9% of all foreign purchases made in Ottawa since 2020.
Trends in foreign asset purchases suggest that when international buyers add Canadian assets to their portfolios, they have a Toronto bias. The city, which accounts for over half of all foreign commercial real estate purchases in recent years, represents 20% of the country’s economic output and 17% of its total population. Toronto attracts foreign investors thanks in part to its larger size relative to other areas. But it is still punching above its weight.
Foreign investors likely prize the city not only for its size but also for its liquidity. As the nation’s largest real estate market, Toronto includes the most opportunity for deep-pocketed investors to deploy capital; finding a willing seller of larger assets is easier in Toronto than elsewhere.
Montreal, too, is punching above its weight, representing 17% of foreign commercial real estate purchases, yet accounting for just 11% of Canada’s economic output. Like most other markets, many foreign purchases have been of industrial properties. The most important of these transactions was Pure Industrial’s purchase of Cominar’s industrial assets for $2.04 billion in March 2022. These assets were concentrated primarily in Montreal and Quebec City. Pure Industrial is a portfolio company jointly operated by U.S. private equity behemoth Blackstone and Canadian institutional investor, Ivanhoé Cambridge.
One market that has not been overachieving in terms of attracting foreign buyers is Vancouver. The city represents 7.7% of the nation’s economy but attracted just 6% of foreign deals since 2020. One reason for this could be the economic slowdown in China over the past few years, which likely affected Chinese investors’ ability to deploy capital overseas. Traditionally the city’s real estate sector has attracted interest from Asian buyers, including from China and Hong Kong.
With the Bank of Canada’s monetary tightening cycle likely at an end, interest rates should start to fall in the coming months. When the rate cuts begin, foreign investors — many of whom with dry powder at the ready — may start to deploy capital more aggressively in Canada. Such activity would be welcome news for the country’s real estate capital markets which have seen total sales transactions across the four asset classes fall 23% from $57 billion in 2022 to $43.7 billion in 2023.
REIT Associated With Sobey’s Grocery Chain Likes Return on Such Projects
Crombie Real Estate Investment Trust is thinking small again for 2024, as the Nova Scotia-based firm aims to focus on more compact developments that offer a solid return and can be completed in a shorter duration.
The chief executive of the REIT which is closely associated with the Sobey’s grocery retail chain revealed the company’s strategy in a recent earnings call. CEO Mark Holly said Crombie remains focused on shorter-term projects that involve modernizing or repurposing existing properties as opposed to largescale ground-up developments.
Such projects come with lower risk and require less time and capital requirements, Holly said. Crombie REIT undertook 24 such projects in 2023, resulting in respectable returns, he said.
“Minor developments are a quick in-and-out,” Holly told analysts on the call. “It’s a good use of capital and the yields have good returns of between 5.5% and 7%. That was our focus in 2023 and will likely be our focus for 2024.”
Crombie REIT’s portfolio is heavily weighted toward the retail sector, with 283 shopping properties spread out over 35 million square feet and having a total value of around $4.3 billion.
However, the REIT also has plans to take on bigger developments that promise to increase its mixed-use residential portfolio, currently consisting of three properties. Crombie is motoring ahead with its Marlstone project that will bring 291 units to downtown Halifax at a development cost of about $134 million. The REIT is also nearing completion of its The Village at Bronte Harbour apartment complex that will add another 481 units to Oakville Ontario.
Holly said that Crombie has canceled plans to build 282 homes in a 10-floor residential project at 1099 Broadview in Toronto and that the REIT plans to sell the property this year. The REIT has also sold its remaining parcel of land at the Opal Ridge project in Dartmouth, Nova Scotia.
2023 was a good year for retail property owners in Canada, Holly said, describing it as a “very strong year for necessity-based retailers due to population growth.” He said that he believes that the positive trend will continue through 2024.
TPG’s Purchase of Industrial Portfolio Marks Quarter’s Largest Deal
The $990 million sale of a 75% interest in two business parks in the Greater Toronto Area was Canada’s largest real estate transaction during the fourth quarter, making it one of the top deals recognized in the latest CoStar Power Broker quarterly awards.
Oxford Property Group sold the stake in the Class-A industrial properties to TPG, a global alternative asset management firm based in Fort Worth, Texas.
TPG sees the Greater Toronto Area as one of the most attractive industrial markets in the world. It said the joint venture offered it an opportunity to enter the market on a large scale by acquiring a 5.1 million-square-foot,10-property portfolio that included Brampton Business Park and Vaughan Business Park.
“We have followed the Canadian industrial sector for several years,” said Jacob Muller, a partner with TPG, in a commentary when the deal was announced on Dec. 18.
Oxford continues to manage the portfolio, which is fully leased and includes tenants with strong credit such as Mondelez, Best Buy, Campbells, and Olympia Tile. All are signed to longer-term leases.
“With this transaction, we generate significant capital to reinvest back into Ontario, which includes the million square feet of new [Greater Toronto Area] industrial developments we are set to deliver by 2026,” said Jeff Miller, head of North American industrial at Oxford Properties, in a comment on the deal.
The listing brokers were Peter Senst, Kai Tai Li and Matthew Brown of the real estate services giant CBRE. No broker represented the buyer.
Top Office Lease
Sobey’s Renews Lease in Toronto Suburb of Mississauga
The largest office lease of the quarter was in Mississauga. (CoStar)
The fourth quarter’s top office lease was in Toronto’s suburb of Mississauga, where grocery operator Sobeys signed a 237,000-square-foot lease at 4980 Tahoe Blvd.
The country’s second-largest grocery chain signed a 10-year lease at the six-storey building, with the ground floor operating as retail and the remaining floors being used for office operations. The start date of the lease was Oct. 1.
Gabrielle Mair of Metrus Properties was the leasing representative contact. Metrus Properties was founded in 1972 and is a member of the Con-Drain group of companies.
Orlando Espinola, vice president of real estate at Sobeys, was the tenant contact.
Top Retail Lease
Altea Active Snaps Up Nordstrom Rack Space
Altea Active signed a lease for its newest high-end fitness concept, Avant, at 1 Bloor St. in Toronto. (CoStar)
The top retail lease of the quarter was in downtown Toronto, where Avant, a luxury wellness and social club and a subsidiary of Altea Active, signed a lease at 1 Bloor Street East.
The company plans to open on the upper level of the former Nordstrom Rack space at the corner of Bloor and Yonge Street. It will have a dedicated street-facing entrance on Bloor Street in a building owned and managed by First Capital REIT.
The lease for 32,000 square feet was signed on Oct. 1. The lease kicks in on Feb. 1, 2025.
Eric Sherman, head of national operations of First Capital REIT, was the landlord and leasing representative. Jeff Flemington, senior vice president, director and broker at Avison Yong, represented the tenant.
Top Industrial Lease
Clorox Renews Warehouse Lease in Brampton
The Clorox Co. renewed its warehouse lease in Brampton. (Linda Cook/CoStar)
The Clorox Co. renewal of its warehouse space in Brampton northwest of Toronto, was selected as the top industrial lease of the quarter.
The global manufacturer and marketer of consumer and professional products agreed to a renewal deal for 334,784 square feet at 150 Biscayne Cres. The company, whose brands include Pine-Sol, Brita and Burt’s Bees, operates in about 25 countries and its products are sold by major grocery chains.
The country’s largest grocery operator, Loblaw Companies Ltd., plans to open 40 new stores in 2024 as part of an investment of $2 billion.
The Brampton, Ontario-based company, whose brands include Loblaws, No Frills and Shoppers Drug Mart, said in addition to the new stores, it will expand or relocate 10 locations and renovate more than 700 others.
“This year, we are investing where Canadians need it most. We will introduce more than 40 new discount stores and 140 new pharmacy care clinics in communities across the country, making healthcare and affordable food more accessible to more people,” said Per Bank, president and chief executive of Loblaw Companies Ltd., in a statement. “These investments in Canada are a catalyst for job growth and the creation of countless opportunities in our stores, in our company and with the many partners who work with us.”
The company said the capital investments are expected to create more than 7,500 jobs.
Loblaw Companies Ltd., majority-controlled by George Weston Ltd., will release its full-year results on Thursday.
The property arm of George Weston Ltd., 61.7% controlled Choice Properties REIT, said during an earnings call this month that it is focused on capital preservation and the development pipeline. The REIT’s real estate holdings are 79% retail, with Loblaws locations accounting for 57% of revenue.
Rael Diamond, president and chief executive of Choice Properties, noted the REIT added 1.8 million square feet of retail, industrial and residential space.
“Our retail tenants continue to expand their store networks,” said Diamond, on a conference call with analysts this month.
The REIT has budgeted for a $479 development pipeline, but 70% of the capital investments are going into Choice Properties’ growing industrial platform.
Michael Markidis, an analyst with the Bank of Montreal, said the REIT trades at a premium to peers but feels it is justified.
“We believe this is warranted given the strength of [the REIT’s] balance sheet and the proportion of income derived from its growing industrial platform,” said Markidis.
Toronto-Based REIT Also Takes Quarterly Loss, Reduces Construction Spending
Canada’s oldest real estate investment trust hiked its dividend 2.8% as Toronto-based RioCan envisions strong growth in the retail sector.
Jonathan Gitlin, president and chief executive of RioCan, said the REIT continues to capitalize on Canada’s short supply of space and strong retail demand.
“We showcased historic operational strength, enhanced efficiency and achieved our financial objectives,” said Gitlin on a call with analysts. “This is the third consecutive annual increase as we provide sustainable distribution growth.”
The REIT saw retail occupancy rise to 98.4% for the fourth quarter that ended Dec. 31. That was up from 97.9% a year earlier. Spreads for new leases were up 13.2%.
RioCan recorded a loss of $117.7 million in the quarter compared to $5 million a year earlier, based on asset writedowns.
The REIT took a fair value loss on investment properties of $450.4 million in 2023 compared to a fair value loss of $241.1 million in 2022. The fair value loss in 2023 was driven by increased capitalization rate assumptions, partially offset by higher stabilized net operating income.
Gitlin told analysts the REIT is “exercising prudence” by reducing construction spending in 2023 relative to the previous year.
“This is a proactive measure. By temporarily scaling down construction spending, we allocate capital to highly productive and accretive uses such as debt repayment, providing third-party mortgages and more appropriate opportunistic acquisitions,” he said.
Residential Business
The REIT has continued growing its residential component known as RioCan Living that has 13 operating buildings representing 2,738 residential units. Eleven buildings are stabilized, and 96.5% are leased as of Feb. 13.
RioCan has slowed down its disposition program designed to focus on major markets and in 2023 it sold $295.4 million in assets.
Gitlin was asked by an analyst with CIBC World Markets what it would take to get the REIT to increase construction. Gitlin noted a lot of their projects are complicated, so decisions are multifaceted
“Interest rates and construction costs are significant elements to it. But there’s also predictability in the timing of the construction process, which we’re working with as best we can to get a little more clarity on that, and then there’s also just decisions around how else to allocate proceeds or funds at this point in time,” said the RioCan CEO.
Mark Rothschild, an analyst with Canaccord Genuity, said the steady growth at RioCan was offsetting the rise in interest rates.
“Operating fundamentals remain solid, and while there are growing concerns about a slowing economy, this does not appear to be a near-term factor in leasing,” said Rothschild in a note on RioCan.
Salthill Capital Sells Courtice Shopping Complex for $28.8 Million
Salthill Capital’s in-house property management and brokerage team arranged the sale of Townline Centre, an 87,346-square-foot, grocery-anchored retail strip centre located in the community of Courtice, near Oshawa, Ontario, as part of a year-end transaction.
The retail property was purchased by a private investor for $28.8 million or approximately $329 per square foot.
Major tenants include grocery store FreshCo, a Chuck’s Roadhouse restaurant, pet supply store Pet Valu, and medical services provider Lakeridge Health.
The property was one of four retail centres in the Durham Region just east of Toronto that Strathallen Capital acquired in 2021 for its Retail Property Fund LP No. 5. Strathallen has since rebranded its company as Salthill Capital.
