Choice Properties REIT CHP-UN-T and KingSett Capital, a private real estate firm, are teaming up to buy First Capital REIT FCR-UN-T for $5.2-billion.
Based in Toronto, First Capital’s retail-focused real estate portfolio is largely made up of open-air shopping centres in major cities, and the vast majority of them are anchored by a grocery store. In total, First Capital’s portfolio value amounts to $9.4-billion, which includes debt.
Choice and KingSett are splitting this portfolio, with Choice buying $5-billion worth of properties and KingSett buying $4.4-billion worth of properties.
First Capital unitholders will receive $24.40 per unit, and the acquisition will largely be paid for with cash, amounting to 79 per cent of the purchase price. The remaining amount will be paid for in units of Choice Properties.
The acquisition marks another loss of a large publicly-traded REIT in Canada, though this deal is only a partial privatization. In January, Minto Apartment REIT went private following its acquisition by Crestpoint Real Estate Investments LP, a division of Connor, Clark & Lunn Financial Group Ltd.
Choice Properties is closely affiliated with Loblaw Cos. Ltd and was spun out of the grocery giant in 2013 to trade on the Toronto Stock Exchange. At the time, Canadian REITs were coveted, often by retail investors, because they paid relatively dependable – and sizable – yields in an era of ultra-low interest rates.
By selling properties it had long owned into the REIT, Loblaw could get a better value for them – and received some immediate cash in the process. These funds were used to help purchase Shoppers Drug Mart around the same time.
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George Weston Ltd., the Weston family’s holding company, continues to hold a 62-per-cent interest in Choice, but the REIT has diversified its revenue mix over the last decade. That effort includes its acquisition of Canadian REIT, another large retail property owner, in 2018.
Choice has remained a buyer of Loblaw properties since it went public, but its new deal for First Capital will help with its ongoing diversification push. After the transaction, Choice will own 797 properties and its Loblaw stores will make up 54 per cent of its portfolio.
First Capital, meanwhile, is selling after fixing its balance sheet. The REIT got into trouble because it was burdened with too much debt, which attracted activist investors in 2024. To call a truce, First Capital reworked its board of trustees and also promised to focus on paying down debt by selling properties.
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While many publicly traded Canadian REITs have watched their unit prices suffer over the last four years as rising interest rates made their yields look less attractive to investors and also raised their mortgage costs, grocery-anchored property owners have been a bright spot.
For many of these REITs, occupancy remains high and there has been limited new supply of properties, which helps to support rents. In March, Bank of Nova Scotia held a retail estate conference and retail-focused REITs told investors that many anchor tenants are trying to add stores.
“Despite stalled population growth, REITs note tenants are still playing ‘catch-up’ post-COVID, with grocers, pharmacies, and discount stores (notably Empire, Shoppers, Loblaw, Canadian Tire, and Dollarama) expanding,” Scotiabank analysts wrote in a note to clients after the event.