Dundee moves back into Ontario

Posted December 15, 2009, 5:29pm EST

Source: The Financial Post, December 10, 2009

Toronto-based Dundee Real Estate Investment Trust, which just over two years ago sold off most of its portfolio in Ontario, appears to be moving back into the province with renewed vigour.

The REIT said it has agreed to pay $211.5-million for the 655,000-square-foot Adelaide Place, a two-tower complex in Toronto's downtown core. The building is being sold by the Ontario Municipal Employees Retirement System subsidiary, Oxford Properties Group.

Dundee also said it has entered into an agreement to sell 4.8 million of its units on a bought-deal basis at a price of $18.75 for gross proceeds of $90-million. The REIT has granted the syndicate on the deal an over-allotment option to purchase up to an additional 720,000 units which, if exercised, would increase the gross offering size to $103.5-million.

In July 2007, Dundee sold off most of its assets in Ontario, Quebec and Newfoundland to GE Real Estate in a deal valued at about $2.4-billion. It was considered by many to be last major transaction to get done before borrowing costs climbed and building values dropped.

Now Dundee appears to be backing away from its exposure to Western Canada, where vacancies are climbing fast. "The fundamentals in Calgary are not too pleasant," said one analyst, who asked not be named. "They have to diversify the portfolio."

Michael Cooper, chief executive of Dundee, seemed to indicate, in a statement, that diversification is the goal of the REIT these days.

"Since the sale of our portfolio in Eastern Canada in 2007, we have acquired or have contracts to acquire $632-million of assets," Mr. Cooper said. "On the whole, the assets added to our portfolio over the past two years enhance the overall quality of our portfolio and our ability to generate stable cash flows."

The REIT has previously announced five additional properties comprising 1.15 million square feet of office space in Toronto and Ottawa under contract, subject to various conditions. Dundee said its acquisition pipeline currently contains $352.7-million of high-quality properties at an approximate 8.1% cap rate.

"The acquisitions reflect Dundee REIT's strategy to grow its portfolio and to once again achieve greater geographic diversification among its assets," the company said.

Before the latest deal, about 54% of Dundee's net operating income was coming from Calgary's office market but that will be reduced to 38%. Exposure to Ontario office buildings will leap from 13% of net operating income to 32%.