RioCan and Killam form joint venture in Ottawa

Monday, April 24, 2017

RioCan Real Estate Investment Trust and Killam Apartment Real Estate Investment Trust announced the formation of a joint venture to develop a rental residential community at Gloucester City Centre in Ottawa, Ontario.

On April 21, 2017, Killam acquired a 50 per cent interest in a 7.1 acre development site located adjacent to RioCan’s Gloucester Silver City Shopping Centre, in the east end of Ottawa. The purchase price for Killam’s 50 per cent interest is $8 million ($16 million at 100 per cent). RioCan and Killam each own a 50 per cent interest in the land and will participate on the same basis in the costs to develop the project. RioCan will act as the development manager, and upon completion, Killam will act as the residential property manager.

The site has zoning approval for a total of four residential towers containing up to an aggregate of 840 units. The first phase of the development will include a 217,000 square foot, 23-storey tower containing approximately 222 units. This leading edge development will maximize efficiency with the incorporation of a geothermal energy system for the building’s heating and cooling. Site work has commenced and occupancy is anticipated in mid-2019. Located adjacent to RioCan’s Silver City Gloucester retail centre and Ottawa’s Light Rail Transit (LRT) Blair Station on the Confederation Line East, the development is easily accessible to many retail, entertainment and transit options.

“We are very pleased to partner with Killam on our first rental residential development in Ottawa. Killam’s experience and management expertise in the rental residential segment will ensure the success of this development project,” said Edward Sonshine, Chief Executive Officer of RioCan. “This rental residential development along the expanding Confederation LRT line is a prime example of the opportunities that RioCan has to extract additional value and cultivate new sources of cash flow from our portfolio of transit oriented urban locations.”

“This joint venture is an exciting opportunity for Killam,” noted Philip Fraser, Killam’s President and Chief Executive Officer. “It aligns with Killam’s growth strategy of developing high-quality properties and diversifying geographically, with an emphasis on next generation operating systems and building features. Partnering with RioCan provides Killam the opportunity to participate in a four-phase apartment complex located next to both modern transit and amenities, and to grow our Ontario portfolio.”

“Despite recently announced expanded rent control guidelines in Ontario to include apartments built after 1991, new apartment development continues to be a sound strategy,” continued Mr. Fraser. “The all-cash yield on this project is expected to be well above the return achievable in today’s acquisition market. This is expected to translate into net asset value creation for Killam’s unitholders upon completion of the project. In addition, with an expected net operating margin of approximately 70 per cent, compared to 55 per cent to 60 per cent for many older assets, the property’s exposure to increased operating costs is limited, and its long-term net operating income growth potential is enhanced. Finally, with no deferred capital, the net cash flow from the project is expected to be stable and predictable.”


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