Canada's Condominium Magazine

Real estate sector creating heat with new REIT IPOs

Real estate continues to raise more money in initial public offerings than any other industry in Canada. The real estate sector was the most active in the three months just ended, with four new issues of REITs on the TSX in the second quarter. The value of the Real Estate Investment Trusts (REITs) was $293 million, according to a survey of IPO activity in Canada from PwC.

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REITs represent a stable investment with relatively high yields, attractive to many investors looking to avoid market volatility.

The strength of the real estate sector is behind the public’s interest in REITs, according to PwC, which called it an “area of stability and growth.” Dean Braunsteiner, PwC national IPO services leader, said that more REITs are in the pipeline, including a “substantial issue” from Loblaws, explaining that “the real estate sector has largely steered around the market volatility of the last few weeks.”

Loblaw has reportedly sold 40 million trust units at $10 each, with an initial yield of 6.5 per cent. The Loblaw Choice Properties REIT sale is set to end around July 5, after which it will begin trading on the Toronto Stock Exchange. About 35 million square feet of retail space will form the basis for the Loblaw REIT.

Canadian Tire is another of the major Canadian retailers that have announced intentions to create REITs. Canadian Tire will create a $3.5-billion REIT with an initial public offering in the fall, the eighth company to do so this year. It will acquire about 18 million square feet of the company’s Canadian Tire retail stores, the company said.

Now it appears that Hudson’s Bay Co. will follow suit and use its vast real estate holdings as the basis of a new REIT, though it is not clear when this will happen.

Creating a REIT is a potential way for companies with large real estate holdings to finance future growth. However, in the case of the Loblaws and Canadian Tire REITs, since most of the real estate holdings already belong to the two companies, the longer-term goal will be to acquire properties that they are not part of. A more varied portfolio of real estate holdings is said to be more attractive to investors.

REITs receive preferential tax treatment from the government because they are required to pay out most of their income to their investors through distributions. And unit holders like them because they provide a steady income in an otherwise volatile market.

So far this year, REITs have raised $760 million from six IPOs, according to Bloomberg, already surpassing the $500 million that was raised last year.

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