This 278,400-square-foot distribution building in Hopewell Distribution Centre in Richmond, BC, is part of PIRET’s Canadian portfolio.

An affiliate of Blackstone Group LP has agreed to acquire Pure Industrial Real Estate Trust (TSX: AAR.UN) (“PIRET”) in an all-cash transaction valued at C$3.8 billion including debt.

Under the purchase agreement announced this morning, Blackstone Property Partners, the private-equity giant’s core-plus real estate investment unit targeting primarily stabilized office, industrial, multifamily and retail assets, will acquire PIRET for $8.10 per unit, a 21% premium to its Jan. 8 closing price on the Toronto Stock Exchange.

PIRET’s unit price was trading at C$8.12 in late-morning trading on Tuesday, up just under 21% from its opening price.

Vancouver-Based PIRET is one of the largest publicly traded REITs in Canada, with industrial real estate assets across Canada and key U.S. distribution and logistics markets. Late last month, the trust announced that it will sell off older non-core properties such as 75-77 Fima Crescent in Toronto, a 53-year-old, 212,110-square-foot multi-tenanted warehouse, in order to acquire newer properties.

PIRET Board of Trustees Chairman Rick Turner, who also chaired the committee to supervise the Blackstone transaction and is recommending unitholder approval of the deal, noted that the trust has generated a total return of more than 345% since its August 2007 initial public offering and “built a platform that has made us a leader in the Canadian industrial REIT space.”

Despite strong fundamentals, Canadian industrial has looked relatively undervalued globally, with companies trading near net asset value compared with global peers, which are trading at an average of 16% premium, according to a report last month by investment bank CIBC World Markets, Inc.

Tyler Henritze, head of North America acquisitions for Blackstone Real Estate, said the acquisition is “a continuation of our global strategy to acquire high-quality logistics assets in key urban markets.” Henritze praised current management and said he looks forward to working together to further build out the portfolio.

Just a few weeks ago, Blackstone global head of real estate Jonathan Gray told the Real Estate Forum in Toronto that he’s bullish on Canada, particularly on the Vancouver, Toronto and Montreal markets. Low capitalization rates and an ample supply of capital competing for a relatively limited amount of product available on the market, however, are making it a bit difficult to find anything to buy, Gray said.

The purchase price implies a 4.7% cap rate, and “at this juncture, we believe the possibility of a higher offer is remote,” according to analyst Michael Markidis of Desjardins Capital Markets.
The transaction is expected to close in the second quarter, subject to unitholders, legal and regulatory approvals under Canadian law.

The agreement allows the PIRET board to accept a superior offer under certain circumstances, subject to a “right to match” and a C$77 million termination fee paid to Blackstone should the deal fall through. If Blackstone backs out under certain circumstances, it’s required to pay PIRET a C$220 million break fee.

BMO Capital Markets is acting as financial advisor and Goodmans LLP is acting as legal counsel to PIRET in connection with the transaction. Greenhill & Co. provided a fairness opinion to the special committee and trustees on the deal.

RBC Capital Markets and Citigroup are acting as financial advisors to Blackstone. Osler, Hoskin & Harcourt LLP and Simpson Thacher & Bartlett LLP are acting as legal counsel to Blackstone.