Primaris Retail REIT is setting itself up for a bigger presence in Canada's biggest cities, a move set off by its acquisition of five retail properties from Ivanhoe Cambridge that closed this week.
The purchase was the REIT's largest to date, expanding the importance of the Greater Toronto Area in its portfolio, bumping the total position to 15 per cent from 8 per cent, and also marking Primaris's first foray in Montreal. The two biggest properties were Oakville Place and Burlington Mall, just went of Toronto, and they accounted for two-thirds of the total purchase price.
It will be interesting to see where the company lands future deals because the REIT recently got some positive new that could help to boost earnings and make it easier to buy more lucrative big city properties. The latest acquisition includes three Zellers that have been selected to be converted to Target stores, and five other of its Zellers locations will be converted to Targets. Heather Kirk at National Bank Financial sees that as a positive because Primaris owns enclosed malls, and that should increase foot traffic.
However, despite the positives, Ms. Kirk notes the acquisition probably still isn't enough to convince rating agency DBRS to award the company an investment grade rating. Historically the REIT hasn't been big enough to garner one, and it didn't have enough geographic diversification. Once it secures this lucrative rating, Primaris will be able to tap the unsecured debt market.
In total Primaris bought five properties from Ivanhoe Cambridge for $572-million, adding 2.5 million square feet of space to its portfolio, with an average capitalization rate of 6.35 per cent. The deal was announced back in May and at that time Primaris raised $335-million in a combination of convertible debentures and subscription receipts to fund the purchase.