Loblaws is spinning off 75% of its real estate into Choice Properties REIT

Loblaws is proposing to transfer 75% of its Canadian real estate, with a value of $7.3 billion, to a subsidiary LP of a new REIT (Choice Properties REIT).  However, only about $600 million of units with a yield of around 6.5% are being issued to the (mostly-Canadian) public, so that, initially at least, loss to the fisc will be modest even if there are a significant number of RRSP purchasers.  (No estimate of the tax deferred percentage is given.)  Loblaw will get most of the $600 million unit offering plus all of the $600 million to be raised under a separate public debenture offering by the REIT.

In addition to the usual use of the issuance of exchangeable Class B units of the subsidiary partnership to Loblaw subsidiaries, they also are taking back Class C preferred units with a fixed return (perhaps in order to service retained debt, somewhat similarly to Melcor).  Unusually, the holders of the Class B exchangeable units are entitled to participate in a DRIP for their Class B units (with a 3% bonus unit feature, and a right to be paid distributions in REIT units rather than Class B units), to mirror a DRIP at the REIT level.

Neal Armstrong.  Summary of Choice Properties REIT preliminary prospectus under Offerings - REIT and LP Offerings - Domestic REITs.