Loblaw to spin real estate into REIT, stock soars

Thu Dec 6, 2012 2:56pm EST
 

By Euan Rocha

TORONTO (Reuters) - Loblaw Companies Ltd (L.TO: Quote), Canada's largest grocer, said on Thursday it plans to spin off the vast majority of its property assets into a real estate investment trust, sending its stock and that of its parent, George Weston (WN.TO: Quote), surging higher.

The move, which will create one of Canada's biggest REITs, is a way to allow Loblaw to reinvest in its core business and boost shareholder value. Loblaw shares jumped more than 24 percent in early trading, while George Weston rose 11 percent.

The company said it plans to spin off real estate worth more than C$7 billion ($7.05 billion) into the REIT and sell units of the trust through an initial public offering that it hopes to complete by mid-2013.

"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."

Canadian REITs have outperformed the broader stock market due to strong demand for commercial and retail real estate. Economic growth has boosted demand for office space in Canada, while U.S. retailers compete for prime retail space for their Canadian growth plans.

The S&P TSX Canadian REIT index .GSPTTRE has risen more than 9 percent in the past 12 months, while Canada's benchmark S&P TSX composite index .GSPTSE has risen just 1.7 percent.

"We believe that this transaction will create substantial value as Loblaw's current multiple is at a historically low level due to poor operating performance," said BMO analyst Peter Sklar in a note to clients.

Loblaw said it intends to retain a significant majority interest of over 80 percent in the REIT.   Continued...