Thursday, August 2, 2018

AIMCo and CPPIB's $1 Billion RE Venture?

Benefits Canada reports, CPPIB, AIMCo team up with industrial REIT to acquire U.S. logistics real estate:
The Canada Pension Plan Investment Board, the Alberta Investment Management Corp. and the WPT Industrial Real Estate Investment Trust are joining forces to aggregate a portfolio of U.S. industrial properties in key logistics markets.

“The combination of AIMCo and CPPIB’s scale and sophistication creates a long-term opportunity that will meet the needs of our clients and stakeholders,” said Micheal Dal Bello, senior vice-president of real estate at AIMCo, in a press release. “AIMCo looks forward to this expanding relationship with WPT in this U.S. industrial venture with CPPIB.”

The venture will consist of up to US$1 billion of total equity between the three parties, with the CPPIB and the AIMCo set to own 45 per cent each. WPT will hold 10 per cent and will manage the acquired properties.

“We are thrilled to partner with two premier global real estate investors that share our long-term vision for the industrial sector,” said Scott Frederiksen, chief executive officer of WPT, in the release. “We appreciate the continued confidence and support of AIMCo and look forward to building our relationship with CPPIB through the growth and success of the joint venture.”

The portfolio will focus on national hubs, including Atlanta, Chicago and Dallas. Major port locations, such as Los Angeles, Seattle and New Jersey, also present favourable fundamentals, the release noted.

“The U.S. industrial sector provides an attractive investment opportunity, driven by trends such as growth in e-commerce, as well as the evolution and modernization of global supply chains,” said Hilary Spann, managing director and head of Americas, real estate investments at the CPPIB, in the release. “We are pleased to be partnering with WPT and AIMCo to expand our presence in this sector.”
Kirk Falconer of PE Hub Network also reports, CPPIB, AIMCo to partner in $1 bln U.S. logistics joint venture:
Canada Pension Plan Investment Board (CPPIB) and Alberta Investment Management Corp (AIMCo) have agreed to back a joint venture that will acquire industrial properties in key U.S. logistics markets.

The joint venture, which is being formed in partnership with WPT Industrial Real Estate Investment Trust (REIT), a Toronto-based investor in U.S. warehouse and distribution assets, will seek to deploy up to US$1 billion.

CPPIB and AIMCo will each own a 45 percent stake in the joint venture. WPT Industrial REIT will hold the remaining interest and manage the acquired properties.

PRESS RELEASE


WPT Industrial REIT, CPPIB and AIMCo Form Joint Venture in U.S. Industrial Property Sector

Toronto, ON/New York, NY (July 31, 2018) – WPT Industrial Real Estate Investment Trust (the “REIT”) (TSX:WIR.U), Canada Pension Plan Investment Board (CPPIB) and Alberta Investment Management Corporation (AIMCo) announced today that they have formed a joint venture to aggregate a portfolio of industrial properties in strategic U.S. logistics markets through a value-add and development investment strategy.

The joint venture will target investing up to US$1 billion of combined equity. CPPIB and AIMCo will each own a 45% interest in the joint venture and the REIT will own the remaining 10% interest.

“We are thrilled to partner with two premier global real estate investors that share our long-term vision for the industrial sector,” said Scott Frederiksen, Chief Executive Officer of the REIT. “We appreciate the continued confidence and support of AIMCo and look forward to building our relationship with CPPIB through the growth and success of the joint venture.”

The joint venture will invest in a diversified mix of strategic U.S. logistics markets with favourable fundamentals primarily national hubs such as Atlanta, Chicago and Dallas as well as global gateway markets such as New Jersey, Los Angeles and Seattle.

“The U.S. industrial sector provides an attractive investment opportunity, driven by trends such as growth in e-commerce, as well as the evolution and modernization of global supply-chains,” said Hilary Spann, Managing Director, Head of Americas, Real Estate Investments, CPPIB. “We are pleased to be partnering with WPT and AIMCo to expand our presence in this sector.”

The REIT will manage the properties acquired by the joint venture.

“The combination of AIMCo and CPPIB’s scale and sophistication creates a long-term opportunity that will meet the needs of our clients and stakeholders,” said Micheal Dal Bello, Senior Vice President, Real Estate, AIMCo. “AIMCo looks forward to this expanding relationship with WPT in this U.S. industrial venture with CPPIB.”

About WPT Industrial REIT

WPT Industrial Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution properties. As of March 31, 2018, WPT Industrial, LP (the REIT’s operating subsidiary) indirectly owns a portfolio of properties consisting of approximately 17.6 million square feet of gross leasable area, comprised of 52 industrial properties and one office property located in 15 states within the United States.
Stock investors can actually invest in WPT Industrial Real Estate Investment Trust (WIR-U.TO), a publicly traded REIT on the TSX (click on image):


As you can see, it gives you a good yield (5.5%) but there's no volume, at least not today.

But this deal is a private $1 billion real estate deal between AIMCo, CPPIB and WPT Industrial Real Estate Investment Trust. Basically, AIMCo and CPPIB are partnering up with experts who know and understand  the US industrial real estate sector.

Again, partnerships are the key. Canada's large pensions need to identify the right partners who have an expertise in real estate, private equity or other asset classes and work with them.

AIMCo and CPPIB are putting up most of the money but WPT will be doing most of the work here as they're the experts in this area.

Does this deal make sense? Yes, it does. All you need to do is read this comment from Prologis on why the logistics real estate market has become far stronger than many had expected and you'll understand why this is an extremely hot sector (PDF file is available here).

More recently, Prologis focused on the importance of consumption, including e-commerce, how location strategy has become a critical differentiator, and the reduced importance of trade as an industry driver.

Are there risks? I'd say there are cyclical risks because industrial real estate typically follows employment trends and the US economy is at peak employment right now.

Still, it's important to remember these pensions are investing for the long run and this means they're not trying to time the market but invest in a secular theme.

Both AIMCo and CPPIB have extensive experience investing in logistics real estate. In fact, back in 2015, APG and CPPIB established a US$500 million Korean logistics development platform with e-Shang and Kendall Square Logistics Properties.

But this deal is with a Canadian partner who understands US  logistics real estate and has extensive experience in the sector.

In short, this is a great deal for all parties involved, one that will invest in a hot and growing real estate sector.

Below, Prologis (PLD) is the global leader in industrial logistics real estate across the Americas, Europe and Asia. They create value by developing and managing a world-class portfolio of high-quality logistics and distribution facilities, serving customers and investors as an integral part of the global supply chain.

Shares of Prologis (PLD) have done very well over the last five years which tells you the company is growing and capitalizing on demand for logistics real estate (click on image):


Now, if WPT can be half as successful as Prologis in this space, then that bodes well for AIMCo and CPPIB on this $1 billion venture.

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