Toronto Landlord Cancels Dividend Reinvestment Plan as Unit Price Dips Below Net Asset Value
Toronto Landlord Cancels Dividend Reinvestment Plan as Unit Price Dips Below Net Asset Value
Toronto Landlord Cancels Dividend Reinvestment Plan as Unit Price Dips Below Net Asset Value
One of Canada’s largest real estate investment trusts is canceling its dividend reinvestment plan because its unit price is too low and it’s become difficult for Summit Industrial to find accretive deals.
Toronto-based Summit suspended its dividend reinvestment plan on Friday until further notice, noting the REIT is well capitalized and has a strong balance sheet with significant financial flexibility and liquidity.
“In the best interests of the REIT and unitholders, the REIT wishes to avoid issuing equity at a discount to net asset value per unit, something that can occur from time to time under the DRIP. The suspension of the DRIP at this time is intended to preserve value and eliminate dilution,” said the REIT in a statement.
Paul Dykeman, chief executive of Summit, said the REIT would be issuing equity below net asset value, so it didn’t want to continue with the dividend reinvestment plan with about 15% to 20% unitholder participation.
“It wasn’t a small thing. It was a couple of million a month,” said Dykeman, about shares being issued for distributions. “I think it will be put back in place, but you never know.”
CBRE reported Monday that Canadian commercial real estate investment activity reached a quarterly record of $19.9 billion over 2,631 transactions in the first quarter. The industrial asset class was the most active in the quarter at $6.4 billion in deals.
Summit did a $200 million equity issue in March at $22.15 per share but its unit price has been dropping since and was barely above $16 earlier his month.
“We are sitting on some cash,” said Dykeman, who expects a $60 million deal in the Greater Toronto Area to close this week and another deal in Montreal expected to close soon.
“We don’t anticipate we will be very active beyond our development programs. We might buy some more land but are not going [to buy] until we get a better understanding of where the market is going,” said Dykeman. “We don’t want to issue debt where the market is right now. We are happy to sit on our hands for what hopefully is only a few quarters.”
He said deals are happening in Alberta, where cap rates are higher, but Dykeman believes people still like the fundamentals in industrial.
“Most of our new deals are at $14 [per square foot] or above, and Montreal is migrating to the same place,” said Dykeman. “There is a huge amount of upside in cash flow [on renewal]. The thing no one knows is where inflation will be and how long interest rates will rise. But with only 1% availability in Toronto and Montreal, we will have to have a significant downturn for a prolonged period to change that.”
Source CoStar. Click here to read a full story
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