Primaris REIT Set to Acquire Conestoga Mall in Waterloo Ontario [Interview]


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Primaris Real Estate Investment Trust is bullish on the Canadian retail market and shopping centres across the country.

Recently, the company announced it was going to acquire the Conestoga Mall in Waterloo, Ontario  from Ivanhoé Cambridge, for aggregate consideration of $270 million, to be satisfied by a combination of cash and equity.

Alex Avery

“This landmark transaction is the culmination of months of collaboration with Ivanhoé Cambridge, and further validates and demonstrates support for Primaris’ platform, strategy and value proposition,” said Alex Avery, Chief Executive Officer of Primaris. 

“Since the inception of Primaris REIT, we have been very clear about the significant opportunity to acquire additional market leading Canadian shopping centres. Primaris is uniquely positioned as a potential buyer, with institutional scale as the third largest owner-operator of enclosed shopping centres in Canada with proforma assets of approximately $3.5 billion, a very well capitalized balance sheet, a differentiated financial model and a mandate for growth.”

Image: Conestoga Mall

Avery said the mall itself made the asset an attractive one for Primaris.

“It is a top 15 mall in Canada on a sales per square foot basis. It has all the features that you really look for in a great shopping centre. It’s got a large piece of land of about 50 acres,” he said. “There’s a light rail station immediately adjacent to it. Sales per square foot are strong. It’s got marquis tenants like the Apple store, lululemon, Aritzia and Sephora.

“And we think that like the rest of our portfolio there is still a significant NOI (Net Operating Income) recovery opportunity at the property. Our portfolio, I mean (everyone), had a challenging time over the last few years – arguably since about 2015. The mall sector in Canada and elsewhere have faced a lot of headwinds and over that period including the pandemic net operating incomes of the properties have generally declined and in many cases quite significantly.

“It’s only been in the last year and a half that you’re really seeing the fundamentals for the mall business turning back up and they are very strong. We delivered over 10 per cent same property NOI growth last year and in 2021 and the first quarter of 2023 was 9.8 per cent. We’re seeing strong demand from retailers. The business is doing really well but we’re coming off of a very low bottom. So we see continued runway and as we looked at (Conestoga Mall) and compared it to the rest of our portfolio we saw a complementary NOI growth opportunity.”

Image: Conestoga Mall

Avery said Primaris is a mall business and it is specially equipped with a fully vertically integrated management platform that is focused on enclosed shopping centres.

“I’m sure in the fullness of time there will be a great intensification opportunity there. It’s a strong growing market with great demographics. There’s a light rail mass transit stop on the site,” he said. “At some point, I’m sure there will be opportunity to add additional uses or pursue some sort of redevelopment. 

“But for the foreseeable future the real focus is continuing to drive NOI higher on the property.”

The Primaris portfolio includes 11.5 million square feet, effectively all retail, with a small office and industrial component. That includes 90 per cent being enclosed malls. 

Patrick Sullivan

“Conestoga was identified early in the process of evaluating potential acquisition targets for a number of notable characteristics, including its leading market position, strong sales performance, mass rapid transit connection and its attractive location within a growing market,” said Patrick Sullivan, President and Chief Operating Officer.

“Our team is very excited to add Conestoga Mall to our property portfolio, with significant income growth potential consistent with the growth we see ahead for our existing assets. With new and exciting retailers unique in the market including Apple, Lululemon and Nespresso, Conestoga Mall is amongst the top 15 most productive malls in Canada and will be highly accretive to Primaris’ overall portfolio quality.”

Image: Conestoga Mall

Conestoga Mall is the leading regional enclosed shopping centre in the high growth market of Kitchener-Waterloo, immediately adjacent to Conestoga station, on the 19-station ION light rail mass rapid transit system. The 585,000 square foot mall (excluding Zehrs) is located on 49.8 acres of land. It has 94.4 per cent in-place occupancy and a $46 million redevelopment was completed in 2018.

Large format tenants include HBC, Galaxy Cinema, Sport Chek, Indigo and H&M, and shadow-anchored by Zehrs with direct access to the mall and unique commercial retail unit (CRU) tenants to the region include Apple, Lululemon, Nespresso, with other notable CRU tenants including Aritzia, Sephora, Aerie, Old Navy and RW & Co.

Primaris said opportunities to increase operating income at Conestoga Mall include:

  • Lease up of approximately 58,000 square feet of vacant or temporary tenanted space to strong tenants at market rents;
  • the conversion of tenants on preferred rent deals to standard market leases; and
  • Leveraging its scalable management platform to deploy its cost management strategy.

“We are very bullish on the opportunity in enclosed shopping centres in Canada,” said Avery. “There’s been very limited new construction over the last 20 years and 30 years. The population keeps growing and while NOI production has fallen off substantially from levels where it was at five or six years ago, retailers have now reached a level of understanding of new omnichannel growth. They’re committed to the bricks and mortar store being the anchor of a successful omnichannel strategy.

“So we’re seeing strong demand from retailers to expand, new retailers entering the market and the consumer has been doing well. We’ve got a very substantial opportunity to capture NOI. Even if retail sales stagnate for a while we still see a long runway even in that scenario.”

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He is the Senior News Editor with Retail Insider in addition to working as a freelance writer and consultant in communications and media relations/training.


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