New Canadian Retail REIT Formed With 44 Sobeys Grocery Stores

Financial Post - January 25, 2006

The parent company of grocery giant Sobeys Inc. said yesterday it is creating a new trust for its real-estate assets, another strong example of a retailer taking advantage of sky-high property values and insatiable investor demand.

Stellarton, N.S.-based Empire Company Ltd., which owns 68.3% of Sobey's Inc., said yesterday it will move assets from its real-estate division into a new entity to be called Crombie Real Estate Investment Trust. The initial public offering is expected to be worth $150-million. Crombie will purchase 44 commercial properties with seven million square feet from Empire's wholly-owned ECL Properties Ltd., which used to be known as Crombie Properties. Empire will retain a 49.5% stake in the REIT through ECL Properties. ECL Properties is the largest commercial property landlord in Atlantic Canada, and has interests in Quebec and Ontario. On top of developing and managing strip malls, it also owns office buildings.

More and more companies are looking at how to monetize the rising value of their real-estate holdings, while investment bankers actively court retailers such as Loblaw Cos. Ltd. on the merits of rolling real estate into a REIT. Others retailers are simply selling off property. Last year Canadian Tire sold $229-million of its real estate to H&R REIT, leasing back the properties on a long-term basis. Some non-real estate companies are now attracting as much interest for their property assets as their core businesses. One recent example is Hudson's Bay Co., now the subject of a takeover battle, which is said to have as much as $770-million in real estate.

"Most retailers want to retain control of the real estate but if they can sell to a REIT and then control the REIT, they get the best of both worlds," said one Bay Street analyst. Sphere: Related Content