Private real estate companies are about to try their luck in the public markets, with two companies filing for initial public offerings and several others who reportedly have them in the works.
The two companies who filed prospectuses last week - is looking for $365-million to buy German office space and Walton Edgemont Development Corp. wants $30-million to build an Edmonton subdivision - may not have much in common other than their industry. But they are counting on the same income-hungry investors to buy their units and help them fund plans at a time when few companies are trying their luck on the markets. They hope to benefit from a strong run for Canadian property companies, which have used their easy access to capital to rapidly expand their asset bases.
"Dundee International is an example of a Canadian real estate company utilizing their low cost of capital in Canada to acquire quality assets abroad that have been shaken loose by the global financial crisis," said Dennis Mitchell, deputy chief investment officer at Sentry Select. "We expect this will be the first of several IPOs in the Canadian real estate sector this year."
The deals are the first real estate initial public offerings of the year, after Homburg REIT, Northwest Healthcare Properties REIT, Transglobe REIT and Leisureworld Senior Care Corp. went public in 2010. Other offerings are rumoured, with a focus on seniors housing and office buildings.
The appetite for REIT units has been strong this year, as have returns - the S&P/TSX REIT index is up 8.7 per cent year to date, compared to a decline of 2.5 per cent in the broader index.
Dundee has filed a prospectus for an offering priced at $10 a unit, and wants to use the money to buy 295 commercial properties in Germany. About 75 per cent of the 12.5-million square feet of space is leased to Deutsche Post, a mail and logistics group.
The buildings are 87-per-cent leased, with an average term of seven years. They are being sold by Lorac Investment Management, which bought them from Deutsche Post in a sale-leaseback arrangement in 2008.
The deal is worth almost a billion dollars, with the rest of the price being covered with debt and additional investments from parent company Dundee Corp.
The newly formed company will also be the only real estate investment trust in Canada with a female chief executive officer. Jane Gavan plans to leave her job as executive vice-president at Dundee Realty Corp. to lead the new REIT.