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Canadian Grocer to Create Nation's Largest REIT

Written By Brian Hicks

Posted December 7, 2012

Yesterday, Canada’s largest grocer, Loblaw Companies Ltd. (TSX: L), stated that it intends to spin off most of its property rights into a real estate investment trust (REIT). Shares of the company and its parent, George Weston (TSX: WN), shot up on the news.

The decision, which will let Loblaw reinvest into its core business, includes more than $7.05 billion in real estate, all of which will go into the REIT.

This decision will result in one of the country’s largest REITs. The company will sell units of the trust via an IPO by mid-2013.

From Reuters:

“We are announcing this today because we feel the timing is right for both our business and the capital markets,” said Galen Weston, Loblaw’s executive chairman, on a conference call. “The size and quality of our real estate assets should be appealing to investors.”

The decision makes a lot of sense when you consider that Canadian REITs have done better than the stock market at large, mostly riding on strong demand for real estate, Reuters reports.

The S&P TSX Canadian REIT Index, for example, has gone up more than 9 percent in the past year. Canada’s benchmark S&P TSX composite index rose a mere 1.7 percent in the same period.

Loblaw hopes to retain interest of 80 percent or more in the newly-formed REIT. The company will direct capital toward paying down debt and making strategic investments for growth and other reinvestments.

Loblaw may indeed want to look toward growing, since Wal-Mart Stores Inc. (NYSE: WMT) has been trying to expand into Canada. Target (NYSE: TGT) isn’t far behind; the first Canadian Target stores will open sometime next spring.

Loblaw’s real estate portfolio is quite formidable; it includes around 47 million square feet with a market value of C$9-$10 billion ($9.1 billion to $10.1 billion). 35 million feet of this will be added to the REIT.

Focus will mostly be on retail usage. Although the REIT will have its own management team, Loblaw intends to provide support and other services.