The Weston family is poised to create Canada's largest real estate investment trust through a $3.9-billion deal for its publicly traded Choice Properties REIT (CHP_u.TO) to buy Canadian Real Estate Investment Trust.
The combination of Choice Properties, which counts Loblaw as its principal tenant and largest unitholder, and CREIT will create a company with a diversified portfolio of 752 properties.
The Weston family — one of Canada’s wealthiest — controls the Loblaw food business and other retail operations, including Shoppers Drug Mart and the Joe Fresh fashion chain, through its holdings in George Weston Ltd.
The REIT empire helps it diversify away from its focus on retail, which has been experiencing mass disruption amid the rise of e-commerce and an increasingly competitive environment.
“Loblaw and GWL continue to be fully committed to Choice Properties as a strong pillar of growth within the Weston Group of Companies,” Galen G. Weston, who is chairman and CEO of Loblaw and GWL, said in a statement.
“We’ve always had an ambition to really establish Choice Properties as a real estate entity on its own,” he added in a conference call with analysts.
“We always contemplated (mergers and acquisitions) as a long-term strategic option for us. . . . And fortunately, we were able to engage in a constructive conversation with (CREIT’s) management and their board.”
Under the arrangement announced Thursday, Choice Properties will pay about 42 per cent of the purchase price in cash — to a maximum of $1.65 billion — and the rest in Choice Properties units, to a maximum of 183 million units.
On a per share basis, CREIT unitholders are being offered $53.75 in cash or 4.2835 Choice Properties units for each CREIT unit held, subject to the overall cash and equity maximums.
Following the deal, Loblaw Companies Ltd. and George Weston Ltd. will own approximately 62 per cent and four per cent of the combined company respectively. Canadian REIT unitholders will own approximately 27 per cent.
The transaction requires a number of approvals, from unitholders in both REITS and the federal Competition Bureau, which has authority to review all mergers in Canada.
“The Bureau is aware that Choice Properties and Canadian Real Estate Investment Trust are proposing to merge. . . . As the Bureau is obligated by law to conduct its work confidentially, I cannot comment further,” media relations officer Jayme Albert said in an email.
The combined entities will be led by CREIT’s management team: chief executive Stephen Johnson, chief operating officer Rael Diamond and chief financial officer Mario Barrafato, who will have similar roles at Choice Properties.
Choice Properties CEO John Morrison, who will become non-executive vice-chairman of the board of trustees, said that CREIT brings expertise in office and industrial properties as well as retail, where Choice has a lot of its assets.
“So, I mean, there may be a bit of rationalization, but I wouldn’t say it would be material,” Morrison said.
Choice Properties did announce Bart Munn will step down as chief financial officer but didn’t disclose whether he was leaving the organization.
Morrison said one of the growth opportunities for the enlarged REIT will be a collection of about 60 properties ripe for mixed-use development, including 48 from Choice.
He added that “some of the CREIT’s properties are in a position to move forward a little bit faster than maybe some of the Choice Property sites that are available.”
CREIT units were up about 16 per cent to $50.49 on the Toronto Stock Exchange Thursday. Choice Property units closed down 3.6 per cent at $12.04.