Artis REIT has an agreement to sell one of its premium industrial properties, the newly developed 1.8-million-square-foot Park 8Ninety in Houston, to U.S.-based KKR as the trust continues divesting assets to strengthen its balance sheet.
KKR will pay $320 million (all figures Cdn). The sale price represents a per-square-foot price of $178, Artis (AX-UN-T) said in a statement released Thursday morning in response to U.S. reports about the sale.
Park 8Ninety is fully leased and spans 127 acres, consisting of 12 single- and multi-tenant buildings. It was constructed in phases over a six-year period with the complex fully built-out in 2022.
The buildings range from 18,921 to over 352,000 square feet and are located in the Missouri City area of southwest Houston, along Beltway 8 and the Sam Houston Tollway at the junction of Highway 90A.
They were developed in partnership with U.S. firm Trammell Crow Company, but Artis bought out its partner and has been the sole owner.
The transaction is expected to close in Q2 2024.
Artis REIT’s strategy
“If completed, the sale of Park 8Ninety would be another important step towards achieving our objective of strengthening our balance sheet, reducing debt and enhancing liquidity,” said Samir Manji, president and CEO of Artis, in the statement.
The transaction was brokered by JLL.
Upon closure of the deal, Artis will have divested almost $675 million of properties since announcing a “strategic review” process in August and beginning an expansive divestment program to reduce debt and enhance its financial flexibility.
Manji provided updates in a letter to shareholders which coincided with the release of the trust’s year-end 2023 financials.
“Since the announcement of the strategic review in August 2023, we have completed or entered into unconditional agreements for $473.6 million of property dispositions,” Manji said at the time.
“This is a testament to the attractiveness of our real estate portfolio and strategic capacity to monetize assets to support our near-term goals: strengthen the balance sheet by reducing debt and enhance liquidity. In pursuing additional dispositions, we will continue to do so with an owner’s mentality.”
Manji said selling the REIT was not an attractive option at the time, but said industrial assets would be a focus for the ongoing disposition program due to the attractiveness of the properties in the market.
“In the current market, Artis and its advisors do not believe that there is a buyer prepared to acquire the REIT at a reasonable value relative to management’s latest published NAV per unit of $13.96,” he explained.
“There continues to be a healthy appetite in the private transaction environment for quality retail and industrial assets.
“There is also buyer interest for certain office assets, but office buyers in general are expecting bargain prices or vendor financing, neither of which are compatible with Artis’s desire to generate financial liquidity from dispositions.”
Other divestments by Artis
The divestments have included properties from all three of the REIT’s asset classes.
In its 2023 highlights, Artis stated it had:
- disposed of nine industrial properties, five retail properties, three office properties and a parcel of development land for $322.4 million;
- entered agreements to sell four office properties, one industrial property, one retail property and a portfolio of eight retail properties in Canada, and one U.S. industrial property, for sale prices of $393.4 million and $53 million, respectively.
As at Dec. 31, Artis held a portfolio of 119 properties, comprising approximately 13.7 million square feet in Canada and the United States, spanning office, retail and industrial assets.
After the transaction closes, Artis will own interests in a U.S. industrial portfolio focused on the Greater Phoenix area and the Twin Cities in Minnesota. It will hold interests in a dozen properties comprising approximately 1.5 million square feet in the two markets.
Manji has already stated Artis intends to exit its 10 per cent investment in the three-building Park Lucero East development in Phoenix, which comprises 561,000 square feet. Each of the buildings were pre-leased, with the leases commencing at various times during 2023.
The REIT also owns about 4.4 million square feet of U.S. office properties (27 assets) which were 83.8 per cent occupied as of year-end 2023.
Artis reported in its year-end financials the industrial portfolio was 99.2 per cent leased as of Dec. 31, 2023.
Artis is to host its AGM on May 23.
