Competition for industrial assets today is fiercer than ever. Evolving retail strategies and the increasing adoption of e-commerce in virtually every sector are forcing investors to think harder about how they should align their portfolios so as to best maximize returns on investments while delivering value to tenants. Balancing these efforts can be difficult so we look to one of the largest industrial landlords in Canada, Pure Industrial (“Pure”), to better understand the company’s asset positioning and management strategies, using a combination of corporate earnings reports and Pelion’s mapping feature.
Who is Pure Industrial?
Pure Industrial is a pure-play industrial real estate investment and development company founded in Vancouver, BC. By Pelion’s estimates, the company currently owns 189 properties (24 million square feet) located predominantly in Toronto, Vancouver, and Montreal. Pure’s assets are primarily flex warehouses and distribution centers that are 120,000 square feet on average.
Pure was established and went public on the TSX Venture Exchange with 10 properties as a REIT in August 2007. The company was formed to fill the gap in Canada’s industrial REIT universe after Summit REIT was taken private by ING Real Estate in late 2006.
In 2018, Pure was acquired and taken private by Blackstone Property Partners and Ivanhoe Cambridge for $3.8 billion.
Looking at Pure’s asset map in markets like Toronto and Montreal, it is apparent that the company prioritizes locations near transportation nodes like airports and highways. In Ontario, for instance, most of the properties are located around Toronto’s Pearson International Airport and along Highway 401. While these assets likely came with a hefty price tag, the company is unlikely to have trouble finding tenants in such prime locations.
More importantly, positioning assets this way helps tenants minimize drayage costs and streamline the supply chain. As tenant demand evolves and becomes more complex, the ability for a landlord to go beyond providing mere warehouse space can help him differentiate himself from the competition tremendously. This in turn helps the landlord maintain his pricing power and occupancy level. While we do not know what Pure’s lease rates and occupancy look like today, we do know that the company has been able to consistently post 95%+ occupancy and maintained market rents when it was public.
Prioritizing Efficiency & Stability
Since its inception, Pure has had a focus on prioritizing efficiency and stability. This is manifested through the company’s preference for single-tenant properties with long lease terms.
Single-tenant industrial properties are typically larger properties that are sought after by large, credit-worthy corporations, who tend to enter into long-term triple/quadruple net leases. While this may increase tenant concentration risks and limit cash flow growth (through lease-up and market rent increases), it does allow for a more efficient property management platform and greater predictability of cash flow, as well as more comprehensive underwriting of tenant’s covenants.
In addition, Pure’s focus on flex warehouses and e-commerce/logistics assets provides greater leasing flexibility and transaction liquidity compared to light/heavy manufacturing industrial properties that are more likely to be custom-built for a specific company’s manufacturing process. This reduces re-leasing risks and further adds to the stability of the portfolio.
Building Economies of Scale
Another key takeaway we got from analyzing Pure’s portfolio is that the company tends to buy properties in clusters to increase regional economies of scale, another indication of the company’s focus on efficiency.
The most recent example of this is Pure’s acquisition of Artis REIT’s 28-property GTA portfolio for $750 million in August. Artis’ portfolio is located primarily in Brampton and Mississauga, Pure’s existing core markets in the GTA. The transaction earned Pure another 2.6 million square feet in the province, a 21% increase.
The exponential demand for industrial assets is attracting unprecedented levels of capital and competition in the sector. Pure Industrial’s growth through its focus on location, stability, and efficiency provides a valuable reference for all landlords looking to sharpen their edge.