Choice Properties Real Estate Investment Trust, the REIT created by Loblaw Cos. (L), is targeting a yield payout of 6 percent to 6.5 percent for its C$400 million ($390 million) initial public offering, according to sale documents.
Choice Properties plans to sell 40 million trust units for C$10 each in its IPO to acquire 425 properties from Loblaw, Canada’s largest grocery chain by market value, according to the documents. The REIT will have an initial market value of C$3.6 billion to C$3.9 billion, the documents said.
Loblaw created the REIT to spin off about 75 percent of its real estate, the Brampton, Ontario-based grocer said in a May 24 statement. Properties include 415 stores, one office complex and nine warehouses totaling about 35.3 million square feet, according to sale documents.
George Weston Ltd. (WN), the parent of Loblaw, said last month it would acquire an additional C$200 million of the REIT units on completion of the sale, which is being led by Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank. Choice Properties will also sell senior unsecured debentures, with proceeds used to repay debt owed to Loblaw. That sale is led by CIBC, Royal Bank, TD and Bank of Montreal.
Loblaw will hold an 83.3 percent to 84.5 percent interest in Choice Properties REIT, according to the documents. The REIT will trade on the Toronto Stock Exchange under the symbol CHP-UN after the sale closes around July 5.
Loblaw closed down 1.6 percent to C$48.09 at 4 p.m. on the Toronto Stock Exchange, after earlier falling as much as 2.7 percent.
Julija Hunter, a Loblaw spokeswoman, and Kim Lee, who represents the REIT, didn’t immediately return messages seeking comment.
The grocery retailer disclosed plans in December to spin off property valued at more than C$7 billion in what it said would be one of the country’s largest REITs.
A C$400 million initial sale would make Choice Properties Canada’s largest REIT public offering, surpassing the C$270 million raised in Dundee International REIT’s July 2011 sale, according to data compiled by Bloomberg.
REITs, which receive preferential tax treatment from the government, are companies that invest in income-producing real estate and pay out most of their income to investors through unit distributions.
Loblaw leads Canada’s biggest retailers in adopting a REIT for its properties. Canadian Tire Corp., the country’s largest sporting goods and auto-parts chain, said May 9 that it will create a C$3.5 billion REIT holding about 250 properties with 18 million square feet. Hudson’s Bay Co. (HBC), Canada’s oldest company, is also considering a REIT “sometime in the future,” CEO Richard Baker said in April.
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