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SmartCentres Looks to Senior Living

Toronto Based REIT, its Largest Shareholder Sign Deal With Senior Living Provider to Create Joint Venture at Malls
February 13, 2018
One of Canada's largest retail real estate investment trusts has signed a joint-venture deal with a major senior living sector provider, a move industry watchers say is a sign of the times for aging power centres and malls.

Toronto-based SmartCentres REIT, the Penguin Group of Properties - which is owned by the REIT's largest shareholder Mitchell Goldhar - and Revera Inc., have agreed to a joint venture to develop new retirement living residences across Canada.

Under the terms of the deal, sites currently owned by both SmartCentres and Penguin have been selected for potential redevelopment along with additional future sites to be identified. SmartCentres and Penguin will act as the developer for sites that each contribute while Revera will operate the branded retirement living residences upon completion.

The retirement living residences will be co-owned 50/50 by each partner in landlord / tenant structures and in operating structures.

"While our shopping centres have never been busier, especially with Walmart as our main anchor tenant, our strategy is now expanding to focus our development horsepower on residential, seniors, office and storage initiatives in order to extract deeply embedded value from each of our existing properties across Canada. This strategy will provide new sources of non-retail income growth," said Mitchell Goldhar, chairman of SmartCentres, in a release.

Alex Avery, a former real estate analyst with CIBC World Markets, said the move to consider alternative asset classes is a natural evolution for retail landlords and noted the deal made a year ago that saw the REIT create a 50/50 joint venture partnership with SmartStop Asset Management LLC to build and co-own rental self-storage facilities in Canada.

"It makes sense for them to look at intensifying lock density properties with uses like seniors housing, self-storage and medical office," said Avery. "The value of a shopping centre in a land-constrained market isn't dictated by current income generated by the retail rents, it's dictated by the highest and best use."

The initial joint venture with Revera will begin with three SmartCentres properties and one Penguin property, all located within the Greater Toronto Area, with future developments to be announced in the coming months, the companies said.

"It is the intention of the partnership to develop and open at least five new retirement living residences per year," according to the release. The actual sites were not made public.

Revera owns or operates more than 500 properties across Canada, the United States and the United Kingdom, and serves more than 55,000 seniors.

"This deal will be an important accelerator to Revera’s growth strategy," said Thomas Wellner, president and chief executive of the senior living sector company, in a statement.

Carl Gomez, senior vice-president of research strategy with QuadReal property Group, wouldn't comment on the specific deal struck, but says power centres are now in an evolutionary phase.

"The power centre evolved out of the demographic of the 1990s. We've firmly moved out of that, where people were moving out to the suburbs, having lots of kids and a minivan and everything else," said Gomez. "Now you have redundant retail siting out in the fringes and that needs to be reinvented and smart landlords are providing other options."

Ross Moore, a vice-president with Cresa Vancouver, said he'll have to see how the developments play out, but he's not sure some retail locations and seniors’ residences are a match.

"I'd say the verdict is out. I know every regional mall owner is looking at residential to bail them out so to speak," said Moore. "Prime regional malls in areas where you can do residential, whether it's straight condos or seniors, are one thing. Can you do this in power centres? Seniors do want to be near amenities, so you are restricted in that respect."

Garry Marr, Toronto Market Reporter  CoStar Group   
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