Our asset acquisition strategy focuses on quality and diversification. Quality, because it helps maintain high occupancy levels and high rental rates. Diversification, because it enhances the long-term reliability of our revenue stream and reduces concentration risk.
Quality is the foundation of our acquisitions strategy and an essential criterion for every new property that we consider. Superior real estate properties attract superior tenants. And superior tenants provide steady revenue. Indeed, the single most important thing we can do to secure reliable monthly distributions for our Unitholders is to acquire high-quality real estate assets.
CREIT's portfolio is diversified by geography and product type. We own properties in most major cities in Canada across a range of asset classes.
Geographically, our diversification ensures that we are not invested too heavily in a single market and gives us access to a broader spectrum of acquisition opportunities.
Our asset class diversification allows us to structure our portfolio to achieve both stability and growth. We target a product mix, determined by net income, of:
- 50% retail properties
- 25% industrial properties
- 25% office properties
We are weighted more towards retail properties because the type of retail assets we target tend to have high occupancy levels and stable tenants, provide the most reliable revenue, and therefore help maintain income stability. Industrial and office properties, generally, have more volatile occupancy levels, but present more opportunities for higher rental rates, and thus help build income growth.
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CREIT's Retail Portfolio
Our objective for our retail properties is that they comprise 50% of our rental income, thus providing a steady and secure income stream.
We focus on acquiring unenclosed open-air properties anchored by leading retailers such as national grocery stores on long-term leases. These properties are generally located at major street intersections within prosperous residential communities and where there are significant barriers to entry for competing developments.
As the graph below shows, the occupancy in our retail real estate portfolio has remained exceptionally strong over time, demonstrating the low volatility and high reliability of our income.
CREIT's Industrial Portfolio
Our goal for our industrial properties is that they comprise 25% of our rental income. Since the lease terms tend to be the shortest of our assets, they allow us to adjust rental rates more frequently and thus gain income growth possibilities.
Within our industrial portfolio, we own distribution facilities and buildings used for general warehousing and light manufacturing, and flex-spaces, which house both office and industrial components within the same rental unit. We look for industrial properties that are of a size and configuration that can easily accommodate the diverse needs of a broad range of users.
We aim to build a critical mass of high-quality generic industrial properties that have a wide range of appeal, with the goal of having a shorter time-frame to lease any vacant space.
The graph below indicates the strong occupancy that CREIT has experienced with our industrial product since 1994.
CREIT's Office Portfolio
Our goal for our office properties is that they comprise 25% of our rental income. We focus on acquiring well-located, high-quality office buildings in large Canadian cities at a purchase price that is less than the cost of fully developing a new office property.
Acquiring existing office properties at below replacement cost allows us to successfully compete on rental rates and to increase rates when new construction begins in a given market. Generally, this means that our office portfolio is well positioned for significant income growth over time. Nevertheless, office occupancy levels and rental rates can be volatile. To counter this, we have developed a strategic initiative to sell a 50% interest in each of our major office properties to a non-managing partner. Not only does this approach reduce risk, it also provides additional income from the fees we receive for managing and leasing the co-owner’s interest in the properties.
As the graph below shows, our office portfolio has experienced greater volatility than our retail and industrial assets. Despite the recessionary environment in 2009, our office portfolio achieved an annual net operating income growth of 2% (on a cash basis).