Home News Canada’s Summit Industrial REIT, a major warehouse owner, sold to Singapore’s sovereign wealth fund for $4.5-billion

Canada’s Summit Industrial REIT, a major warehouse owner, sold to Singapore’s sovereign wealth fund for $4.5-billion

by admin
0 comment

GIC, Singapore’s behemoth sovereign wealth fund, is swooping into Canada to acquire Summit Industrial Income REIT. SMU-UN-T Warehouse properties in major cities such as Toronto and Montreal are proving to be one of the hottest properties in the world.

GIC’s acquisition, announced Monday, is structured as a joint venture with Dream Industrial REIT DIR-UN-T, dividing by 90% and 10% respectively. Together, we are paying $23.50 cash per Summit unit. This is a 31% premium over Friday’s closing price.

Summit units traded at around $22.40 late Monday morning, recovering most of the losses of the past six months. In October 2021, it hit a new high of $23.89 per unit.

Industrial warehouse owners in Canada enjoy some of the strongest business fundamentals of any class of real estate.Ask Domestic warehouse is very strong National vacancy rates have fallen to a record low of 1.6%, according to CBRE Group Inc., a commercial real estate services and investment firm. Tenant turnover and lease renewal.

But major online platforms such as Amazon.com and Shopify have warned that pandemic profits are an anomaly and are beginning to reverse, with the e-commerce boom taking a toll on public-listed industries. REITs have been struggling lately.

Interest rates have also surged and continue to rise, making commercial mortgages more expensive. Constant inflation also drives up development costs.

At the same time, as interest rates rise, investors have more options for yields of equal or higher value. For example, a one-year guaranteed investment certificate currently pays close to 5% per annum. Summit Industrial REIT’s units are paying an annual dividend yield of 3.2% at the market close on Friday.

The headwinds have unsettled many retail investors, with REITs of all kinds trading at steep discounts to net asset values. As of Friday, Summit’s units were trading at $17.93 per unit, below analysts’ average REIT net asset value calculation of $19.66 per unit.

Summit Industrial exclusively owns a Canadian warehouse, and its units were down 21% in 2022 before the acquisition announcement. But in August, when the REIT last reported quarterly earnings, management revealed an average rent increase of 46% this year due to lease renewals or tenant turnover. Similarly, the national average rent for all industrial warehouses in Canada hit a record high of $12.25 per square foot. Five years ago it was less than $7.

Demand for warehouses began to rise around 2016 when e-commerce gained momentum, and then surged with the pandemic. Although the e-commerce boom has cooled, overall online sales are still rising, and CBRE needs about 1.25 million square feet of warehouse inventory for every $1 billion in e-commerce sales in Canada. I’m assuming. This means we may need another 90 million square feet of space over the next five years. Canada currently has 1.9 billion square feet of industrial space.

Warehousing is also expected to be needed as just-in-time inventory systems become more prevalent and businesses increasingly turn to onshore sourcing to alleviate supply chain challenges. High transportation costs are also driving up the value of industrial real estate. This is because logistics and transportation costs typically account for 70% of supply chain spending, while real estate accounts for only 5% of the burden. So having a warehouse closer to your customers saves you money.

Summit’s units have been sold in the past six months, but were up 144% in the past five years before the acquisition was announced, before calculating the monthly distribution. The equivalent return for the S&P/TSX over the same period was 22%.

Summit is not the first time a global institutional investor has acquired a Canadian industrial warehouse owner. In 2018, Blackstone Group acquired his Pure Industrial Real Estate Trust for his $2.48 billion.

If the Summit acquisition is approved by the beneficiaries, Dream Unlimited, a holding company operated by Dream Industrial founder Michael Cooper, will act as asset manager of the joint venture. In a news release, Dream said it would retain “the majority of Summit’s workforce” after the transaction closes.

You may also like