Boardwalk REIT (BEI-UN-T) has announced an agreement to acquire the newly constructed, 295-suite The Circle apartment building in Calgary, and a $218-million unit offering to be used, in part, to fund the transaction.
The Circle will be acquired for approximately $77.8 million, representing a stabilized cap rate of approximately 5.75 per cent and at a significant discount to current construction costs, Boardwalk’s announcement states.
“The capital raised through this offering enables us to continue to invest in much-needed new supply of multifamily communities accretively, and proactively strengthens our balance sheet for future growth opportunities,” Sam Kolias, chairman and chief executive officer of Boardwalk, said in the announcement.
“Alberta continues to attract strong migration with high affordability levels, ample job opportunities and rents relative to income levels remaining amongst the most affordable in Canada.”
The trust entered a conditional purchase agreement for The Circle in May 2022 and has approximately $69.8 million remaining to close the transaction.
About The Circle
The Circle is a class-A community that was completed earlier this year, featuring modern finishes, stainless steel appliances and in-suite washers and dryers. The community is approximately 85 per cent leased as of Dec. 4.
It is located within the master-planned Seton neighbourhood, providing modern and desirable neighbourhood amenities to residents. It is also near two of Boardwalk’s existing communities – The Level and Auburn Landing – providing operational efficiencies for the portfolio.
“Strong housing fundamentals in Boardwalk’s target markets, paired with the trust’s proven operating platform, provide attractive opportunities for both organic and external growth,” Kolias said in the announcement. “Our acquisition pipeline includes similar modern, high-quality assets at attractive pricing that enhance portfolio quality and generate strong funds from operations per unit growth to our unitholders while providing residents the best product quality, service and experience.
“This equity issue, which is the first by Boardwalk in approximately 17 years, is part of Boardwalk’s continued disciplined capital allocation program and demonstrates our ability to invest accretively.”
The acquisition is expected to close by February 2024 and the property is being acquired unencumbered by debt.
Financial impact of the transaction, offering
The trust intends to use approximately $50 million of proceeds from the offering to fully repay its portion of the outstanding construction loan at its 45 Railroad development in Brampton, Ont. The interest rate on the floating-rate loan is 6.63 per cent.
The acquisition of The Circle, paired with the repayment of the construction facility, are expected to provide immediate accretion to the trust’s funds from operations.
The proceeds are also expected to provide flexibility to capitalize on future acquisition opportunities in Boardwalk’s pipeline.
The announcement states Boardwalk continues to evaluate “attractive opportunities in its target markets, and has a pipeline of future acquisition and development opportunities.”
The offering will issue 3,185,000 units in Canada on a bought-deal basis for $68.50 per unit.
The syndicate of underwriters is being led by TD Securities Inc. and RBC Capital Markets. In addition, the underwriters have an over-allotment option to purchase up to 477,750 additional units at that price for 30 days following closing.
If the over-allotment option is exercised in full, the gross proceeds will total approximately $251 million.
About Boardwalk
Calgary-based Boardwalk REIT is a major owner/operator of multifamily rental communities, providing homes in more than 200 communities, with over 33,000 residential suites totalling over 29 million net rentable square feet.
The firm’s three-tiered and distinct brands: Boardwalk Living, Boardwalk Communities and Boardwalk Lifestyle, cater to a diverse range of demographics.