Loblaw to Spin Off Real Estate

BRAMPTON, Ontario — Loblaw Cos. last week said it plans to spin off its real estate holdings in a separate real estate investment trust in a deal it said would unlock value for shareholders and provide the retailer an additional source of capital.

Loblaw said it would contribute approximately 35 million square feet of properties to the REIT, including stores, shopping centers, warehouses and office properties. It estimated the properties have a current market value of around $7 billion. Loblaw said it intends to maintain an 80% ownership in the REIT, which would be spun off as a publicly  traded entity in mid-2013.

In a conference call discussing the deal, Galen G. Weston, Loblaw’s executive chairman, said the decision reflects favorable investor sentiment toward real estate while rents will provide Loblaw with a new source of capital it could invest in its retail stores. Company stock soared by more than 16% following the  announcement.

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“We obviously believe we have an enormous amount of unrecognized value in our real estate portfolio and we’ve looked at this opportunity many times over the years,” Weston said. “And as we looked at the circumstances over the last six to nine months, we felt this was the right thing to do. But we wouldn’t be doing it if we didn’t feel it also represents a great opportunity to enhance our strategic plan for Loblaw. Part of that is long-term access to funds we can put against growth.”

Loblaw said it intended to name outside management to run the REIT. That group would have a mandate to explore opportunities outside of Loblaw as a means of diversifying its portfolio. It is also expected to add additional Loblaw properties to the REIT as the properties mature.

Loblaw said it expects to consolidate the REIT’s financial results for financial reporting purposes and believes the company’s consolidated profitability will be minimally impacted.