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Press release from CNW Group

Empire and Sobeys Announce Agreement to Sell 68 Canada Safeway Properties to Crombie REIT for $990 Million and Empire Announces $150 Million Equity Investment in Crombie REIT

Wednesday, July 24, 2013

Empire and Sobeys Announce Agreement to Sell 68 Canada Safeway Properties to Crombie REIT for $990 Million and Empire Announces $150 Million Equity Investment in Crombie REIT

15:28 EDT Wednesday, July 24, 2013

NOT FOR DISTRIBUTION IN THE U.S.

STELLARTON, NS, July 24, 2013 /CNW/ - Empire Company Limited ("Empire" or the "Company") (TSX: EMP.A) and its wholly-owned subsidiary, Sobeys Inc. ("Sobeys"), have announced that Sobeys has reached a definitive agreement to sell 68 properties (the "Properties") representing approximately 3.0 million square feet of gross leasable area to Crombie Real Estate Investment Trust ("Crombie REIT") for an aggregate purchase price of $990 million in cash, subject to certain customary adjustments (the "Sale Leaseback Transaction").  All the properties are located in Western Canada, with 39.6 percent of the Properties' gross leasable area located in British Columbia, 42.6 percent in Alberta, 4.8 percent in Saskatchewan and 13.0 percent in Manitoba.

On June 12, 2013, Empire and Sobeys announced that Sobeys had reached a definitive agreement with Safeway Inc. to acquire substantially all of the assets of Canada Safeway Limited ("Canada Safeway") for a cash purchase price of Cdn. $5.8 billion, subject to a working capital adjustment, plus the assumption of certain liabilities.  That announcement disclosed Sobeys' intention that financing for the acquisition included a $1.0 billion sale leaseback of acquired real estate assets and that Crombie REIT had a right of first offer in respect of any real estate sales undertaken by Sobeys.  The Sale Leaseback Transaction announced today is the conclusion of that negotiation process.  The proceeds from this transaction will be used to assist in the financing of the acquisition of Canada Safeway by Sobeys.

Paul D. Sobey, President and CEO of Empire stated, "We are pleased to announce this Sale Leaseback Transaction between Sobeys and Crombie REIT. The sale proceeds will be used by Sobeys to assist in the funding of the Canada Safeway acquisition which provides Sobeys with a much stronger presence in Western Canada and allows them to benefit from increased economies of scale. The Sale Leaseback Transaction provides Crombie REIT with an attractive portfolio of assets. Empire is pleased to announce that it will purchase $150 million of Crombie Class B Limited Partnership units."

As a condition of closing, wholly-owned subsidiaries of Sobeys, as tenant, will enter into fully net leases for each of the Properties (the "Sobeys Leases") with any third party tenants occupying any portion of any Properties becoming a tenant of Sobeys. The aggregate annual basic rent under all the Sobeys Leases is $57.1 million increasing annually by 1.5 percent per year, with such increases being phased in over time and applied to 20 percent of the Properties in each year following closing.  The leases will be fully net to the landlord, such that Sobeys shall be responsible for all property taxes, insurance, maintenance and structural repairs during the term of the lease, and will otherwise provide for retail food store and any other lawful retail use subject to certain customary limitations, acting reasonably. Each lease will be based on an initial term of three years and thereafter alternate between successive terms of two years and three years until an outside date for each Property of between 15 years and 20 years after the date of the Sobeys Leases (the "Outside Date"), which Outside Date may be extended at Sobeys' option by up to ten consecutive further periods of five years each.

Crombie REIT has announced that in order to partially finance the Sale Leaseback Transaction it has entered into an agreement to sell to a syndicate of underwriters on a bought deal basis approximately $225 million of subscription receipts which are convertible into Crombie REIT trust units, and $75 million principal amount of extendible convertible debentures which are exchangeable into Crombie REIT trust units. In satisfaction of its pre-emptive rights under Crombie REIT's offering, a wholly-owned subsidiary of Empire has agreed to purchase $150 million of Crombie Class B Limited Partnership units at the same price per unit as the Crombie REIT subscription receipts on a private placement basis. Each Crombie Class B Limited Partnership unit is convertible into one Crombie REIT trust unit. Empire's additional investment in Crombie REIT is expected to be completed upon the closing of the Sale Leaseback Transaction at which time the Crombie REIT subscription receipts will be exchanged into Crombie REIT trust units.

The Company expects to fund Empire's additional investment in Crombie REIT from proceeds from the exercise of the over-allotment option, if any, in respect of the Company's $1.6 billion subscription receipt offering announced earlier today and drawing on its revolving credit facility. As a result of Empire's additional investment in Crombie REIT, its ownership interest in Crombie REIT is expected to be reduced from 42.7 percent to approximately 42.1 percent (from 40.8 percent to approximately 39.3 percent on a fully diluted basis).

The Sale Leaseback Transaction is conditional upon the satisfaction of certain customary conditions, as well as upon: (i) the closing of the Canada Safeway acquisition; (ii) regulatory approval; (iii) the receipt of Crombie REIT unitholder approval, including minority approval for a related party transaction; and (iv) Sobeys providing to Crombie REIT an unlimited environmental indemnity with respect to each of the Sale Leaseback Properties in respect of which Crombie REIT has not been able to complete its customary environmental due diligence. The Sale Leaseback Transaction includes procedures under which individual properties may be removed by either party for reasons which include regulatory or environmental concerns as well as procedures under which properties removed may be replaced, and must be replaced if the removal of properties causes the aggregate purchase price for the Sale Leaseback Transaction to fall below $900 million. The Sale Leaseback Transaction is expected to close concurrently with the closing of the Canada Safeway acquisition.

FORWARD-LOOKING INFORMATION

This news release contains forward-looking information reflecting management of the Company's expectations regarding the possible sale of properties by Sobeys to Crombie REIT. The forward-looking statements in this news release are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from current expectations. No assurance can be given that the sale of properties to Crombie REIT will be completed, or the timing of the closing of such sales.  Some of the factors that could affect the closing of the Sale Leaseback Transaction include: (i) those relating to Crombie REIT obtaining appropriate financing and unitholder approval; (ii) the need to obtain relevant regulatory approval for the acquisition of substantially all of the assets and select liabilities of Canada Safeway by Sobeys, including the satisfaction of other closing conditions; and (iii) other risks as described in detail from time to time in documents filed by Empire or Sobeys with security regulatory authorities in Canada.

Neither the Company nor Sobeys undertakes to update any forward-looking statements that may be made from time to time by them or on their behalf other than as required by applicable securities laws.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

ABOUT EMPIRE

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia.  Empire's key businesses include food retailing and related real estate.  With over $17 billion in annual sales and approximately $7.1 billion in assets, Empire and its subsidiaries directly employ approximately 47,000 people.

Additional financial information relating to Empire, including the Company's Annual Information Form, can be found on the Company's website at www.empireco.ca or at www.sedar.com.

ABOUT SOBEYS

Proudly Canadian, with headquarters in Stellarton, Nova Scotia, Sobeys has been serving the food shopping needs of Canadians for 106 years. A wholly-owned subsidiary of Empire Company Limited (TSX: EMP.A), Sobeys owns or franchises more than 1,300 stores in all 10 provinces under retail banners that include Sobeys, IGA, Foodland, FreshCo, and Thrifty Foods, as well as Lawton's Drug Stores, in addition to over 260 retail fuel locations. Sobeys and its franchise affiliates employ more than 95,000 people. The company's goal is to be widely recognized as the best food retailer and workplace environment in Canada. More information on Sobeys Inc. can be found at www.sobeyscorporate.com.

ABOUT CROMBIE REIT

Crombie Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established under, and governed by, the laws of the Province of Ontario.  The trust invests in income-producing retail, office and mixed-use properties in Canada, with a future growth strategy focused primarily on the acquisition of retail properties.  Crombie REIT currently owns a portfolio of 176 commercial properties in nine provinces, comprising approximately 14.5 million square feet of gross leasable area.  More information about Crombie REIT can be found at www.crombiereit.com.

SOURCE EMPIRE COMPANY LIMITED

For further information:

Paul V. Beesley
Executive Vice President & Chief Financial Officer
Empire Company Limited
(902) 755-4440

Paul Jewer
Chief Financial Officer
Sobeys Inc.
(902) 752-8371

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