Choice/Loblaw

Overview

Offering of 60M units by the REIT at $10 per unit. The REIT, an Ontario trust and s. 108(2)(a) unit trust, will indirectly acquire the beneficial ownership of a Canadian real estate portfolio (38% in Ontario) by acquiring a newly-formed Ontario limited partnership (the "Partnership") from Canadian subsidiaries (the "Transferors") of Loblaw Companies Limited ("Loblaw"). The portfolio (the "Initial Properties") will consist of 425 properties, including 415 retail properties, with an appraised value (including a portfolio premium of 2% to 4%) of $7.25B to $7.40B (reflecting a cap rate of 5.92% to 6.04%). The Transferors will hold Class B exchangeable LP units and preferred Class C LP units of the Partnership. The parent of Loblaw, George Weston Limited ("GWL"), will hold 20M units of the REIT.

Loblaw

Loblaw, which is TSX-listed, has a market cap of $14.0B. Its majority shareholder is GWL, which is a Canadian public company. The Initial Properties represent approximately 75% of the real estate of the Transferors.

Loblaw-group tenants will generate 91% of rents. Loblaw will enter into a Strategic Alliance Agreement with the REIT for an initial term of 10 year (e.g., REIT right of 1st offer, REIT responsibility for expansion costs, Loblaw right of 1st lease, no supermarket leasing to competitors).

Structure

Loblaw (i.e., ignoring the 20M units of GWL) will hold an approximate 81.7% effective interest (assuming exercise of the over-allotment option) in the REIT, directly, and through the holding by the Transferors of Class B LP units of the Partnership (and a matching number of special voting units of the REIT with nominal economic attributes), with the Transferors also holding Class C LP units (see below). The Class B LP units will be exchangeable on a one-for-one basis for REIT units, whose economics they will track. The REIT will hold Class A LP units of the Partnership, together with the GP thereof, which will hold Class A GP units (representing a 0.001% profits interest).

Class C LP units

Class C LP units of the Partnership will be entitled to a fixed priority draw of 5% of their $925M value, distributed monthly and will have priority over the other clases of units. Upon the request of the Transferors, the Partnership will be obligated to redeem up to $300M, $330M and $325M, of the outstanding Class C LP units in 2027, 2028 and 2029. Both the Class C LP units and Class B LP units are treated as debt under IFRS.

Closing transactions

At closing:

• The Transferors will subscribe for $2.6B of units of a new trust (the Transferor Trust) in exchange for the issuance by the Transferors to the Transferor Trust of $2.6B of "Transferor Trust Notes"
• The Partnership will acquire the Transferor Trust Notes from the Transferor Trust in consideration for the issuance by it of $2.6B of "Transferor Notes" (bearing interest at 3.24%) to the Transferor Trust
• The Transferors will transfer their beneficial interest in the Initial Properties to the Partnership "in exchange for the assignment" (i.e., as repayment) by them of the $2.6B of Transferor Trust Notes and in exchange for the issuance to them of $600M of Class A LP Notes, $215M of Class B LP Notes, 272M Class B LP units (accompanied on a one-for-one basis by Special Voting Units of the REIT) with a value of $2.72B, and 92.5M Class C LP units, with a value of $925M
• The REIT will issue 40M units under the offering, and 20M units to GWL, for gross proceeds of $600M; (the underwriters have agreed that no units will be offered in the U.S. except under Rule 144A)
• The REIT will issue (pursuant to a separate prospectus offering) $400M of Series A, and $200M of Series B, debentures bearing interest at 3.554% and 4.903%, respectively
• The REIT will acquire all the outstanding Class B LP Notes in exchange for 21.5M REIT units
• The REIT will transfer all the proceeds of the offering and of the 20M units issued to GWL, and contribute the Class B LP Notes, to the Partnership as subscription consideration for Class A LP units of the Partnership
• The Partnership will use $600M of the subscription proceeds received by it to redeem the Class A LP Notes
• The REIT will lend the $600M debenture proceeds to the Partnership, which will repay $600M of the Transferor Notes (with those proceeds presumably being distributed by the Transferor Trust to the Transferors)

Distributions

Monthly, of $0.054 per unit ($0.65 per annum), estimated to be 90% of AFFO. No estimate of tax deferred percentage. DRIP with 3% bonus distribution. Upon the request of a Class B LP unitholder, the Partnership will adopt a similar DRIP for them (and they also may elect to receive distributions on the Class B LP units in the form of REIT units).

Management

The REIT will have internal management. It will receive Loblaw services on a cost recovery basis, and Arcturus Realty Corporation initially will be the property manager for 150 of the properties.

Canadian tax disclosure

SIFT status. Per the Forecast, the REIT believes that it will satisfy the REIT exception for 2013 ("counsel will not review the REIT's compliance.") The Partnership is expected to qualify as an excluded subsidiary entity.

Reduced UCC under s. 97(2)

Per Risk Factors, the Initial Properties will be acquired on a rollover basis.

Distribution Reinvestment Plan

Following Closing and subject to regulatory approval, the REIT intends to implement the DRIP pursuant to which Unitholders may elect to have all or a portion of cash distributions of the REIT payable to any such Unitholder automatically reinvested in additional Units at a price per Unit calculated by reference to the volume-weighted average of the closing price of the Units on the stock exchange on which the Units are then-listed for the five trading days immediately preceding the relevant Distribution Date. Unitholders who so elect will receive a further distribution of Units equal in value to 3% of each distribution that was reinvested by the Unitholder.

Class B Exchangeable Units

Upon the request of a Class B LP unitholder, the subsidiary Partnership of the REIT will adopt a similar DRIP for them (and they also may elect to receive distributions on the Class B LP units in the form of REIT units).

Canadian tax consequences

Standard disclosure re cash distributions (including those reinvested under the DRIP). For the purposes of determining the adjusted cost base to a Holder when a Unit is acquired, whether as a Unit acquired pursuant to the DRIP or otherwise, the cost of the newly acquired Unit will be averaged with the adjusted cost base of all the Units owned by the Holder. The cost of the Units acquired by reinvestment of distributions pursuant to the DRIP will be the amount of such reinvestment.

Full summary under Offerings - REIT and LP Offerings.