Pro Real Estate Investment Trust has relaunched its initial financing with more favourable terms for investors, sources say, a sign that the market is now giving new REITs a tougher time.
ProREIT has raised its yield to 8.85 per cent, from 7.5 per cent to 8 per cent, and will also be reducing the management and acquisition fees that it pays out, in a bid to entice investors, sources say.
Real estate investment trusts, which not too long ago were the darling of the market, have taken a hit of late, largely because of fears about higher interest rates.
Investors flocked to REITs in recent years in part because of a dearth of other securities that offer decent yields, but higher rates will mean more competition for investor attention.
They will also mean that the REITs will have higher mortgage costs down the road. With REITs losing some of their lustre, analysts say that newcomers to the sector are coming under more scrutiny.
ProREIT's financing is not a traditional initial public offering. The company got its start by way of a reverse takeover of Taggart Capital Corp., which listed on the TSX Venture Exchange in 2011 and then converted to a REIT in March – but it is similar. The current financing will help to pay for the $155.6-million worth of properties from eight different sellers that will make up the bulk of the REIT's initial portfolio.
All told, the REIT's initial portfolio will include 28 office, retail, industrial and mix-used properties in Eastern Canada. The REIT is being run by executives who were previously at Canmarc REIT, which was bought by Cominar REIT in the spring of 2012.
(Tara Perkins is a Globe and Mail real estate reporter.)
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