Loblaw to form one of Canada's largest REITs; company plans IPO in mid-2013

BRAMPTON, Ont. – Shares of Loblaw Companies Ltd. (TSX:L) jumped 20 per cent Thursday after the grocery chain operator announced it wants to unlock shareholder value by creating one of the largest real estate investment trusts in Canada.

Loblaw says it plans to contribute a significant portion of its real estate assets with a current market value of more than $7 billion to the planned REIT.

Units of the REIT are to be sold in an initial public offering expected to be completed in mid-2013, subject to regulatory approvals.

Details on pricing and the number of units to be offered were not disclosed.

However, Loblaw said it “intends to retain a significant majority interest.”

“The creation of the REIT is expected to build long-term value both for Loblaw and the REIT,” Loblaw executive chairman Galen G. Weston said in making the announcement Thursday.

“This strategic initiative positions Loblaw’s core businesses well for the future. We expect the REIT to not only unlock value for our shareholders, but also increase our financial capacity to pay down debt, buy back shares and create a long-term source of capital to invest and grow.”

Loblaw shares were up $6.82 to $40.42 in the early going on the Toronto Stock Exchange on heavy volume. Loblaw parent company George Weston also saw a boost, trading up almost nine per cent, or $5.66, to $69.07.

Weston said the REIT, which the company expects to be one of Canada’s largest, “builds on our long-standing commitment to owning and developing quality real estate.”

“It will be a vehicle to manage and enhance our real estate portfolio with the potential for future expansion through incremental vending in… our own real estate and external investment opportunities.”

Loblaw’s real estate portfolio spans an estimated 47 million square feet and has a current estimated market value of $9 billion to $10 billion.

As part of the transaction, Loblaw intends to contribute approximately 35 million square feet to the REIT and will enter into long-term lease arrangements with the REIT on those properties.

The contributed real estate portfolio will be largely retail focused and comprise a geographically diverse mix of stores and shopping centres, and will also include warehouses and office buildings.

Loblaw expects that as a stand-alone entity, the REIT will benefit from a lower cost of capital, which will support its development and expansion.

“Growth will also come from Loblaw’s contribution of additional properties over time as well as opportunities outside of the Loblaw footprint,” it added.

The REIT will have a dedicated management team focused on overseeing the contributed properties and growing the portfolio, while Loblaw will provide support and various services.