RioCan Real Estate Investment Trust is making its first major U.S. acquisition, with a $181-million (U.S.) deal to acquire shopping malls in the northeastern and Mid-Atlantic states as well as a minority stake in a U.S. developer.
Canada's largest shopping mall owner said Monday it had struck definitive agreements with Cedar Shopping Centers Inc. to take an equity stake in the Port Washington, N.Y. real estate investment trust, owner of 124 shopping centres.
Under the deals, RioCan will form a joint venture to acquire retail properties to be owned 80 per cent by the Canadian company and 20 per cent by Cedar. The first properties in the joint venture are seven grocery store-anchored shopping centres in Massachusetts, Pennsylvania and Connecticut currently owned by Cedar.
RioCan will also take a 15-per-cent stake in Cedar, with the acquisition of 6.7 million shares and 1.4 million warrants of the U.S. company.
RioCan said it will invest $181-million in the transaction, including a net equity investment of $106-million after assumption of $75-million of property level mortgage debt.
"RioCan's objective is to take a measured and defensive approach to investment in the U.S. market," president and CEO Edward Sonshine said after stock markets closed Monday.
"We believe that this joint venture with Cedar permits RioCan to team up with a very strong, experienced and well established management platform, for our first acquisition in the U.S."
RioCan reported Monday a profit of $28.4-million or 12 cents per unit for the quarter ended Sept. 30 compared with a profit of $40.9 million or 19 cents per unit a year ago.
Cedar said the two companies expect to acquire up to $500-million worth of supermarket-anchored properties in the northeast and mid-Atlantic states in the next two years. The companies will also enter into a three-year standstill agreement on RioCan's minority stake in Cedar.
"We expect the great financial strength of RioCan and its commitment to our company to be beneficial for both companies in the coming years," Cedar CEO Leo Ullman said.
"We believe that this important investment in our company will lead to the creation of meaningful added value for the benefit of shareholders as we move forward."
RioCan said the properties are well located within established communities in Massachusetts, Pennsylvania and Connecticut and include grocery anchor tenants such as Giant Foods and Stop & Shop, two grocery retailers owned by Royal Ahold, and Super Fresh, which is owned by Great Atlantic and Pacific Tea Company Inc.
The initial property portfolio will continue to be managed by Cedar.
"We believe that this transaction with Cedar presents an excellent opportunity for RioCan to make a cautious introduction into the United States and to build a defensive portfolio which includes the potential to achieve greater returns not only from organic rent growth but through the leasing of vacant space over the next 12-24 months," added Sonshine.
"The combination of assets in Canada's fastest growing markets with a stabilized portfolio of high quality retail assets in the U.S. will give RioCan a greater presence as one of North America's leading retail landlords as well as providing another avenue for growth."
RioCan is Canada's largest real estate investment Trust with a total capitalization of $7.8-billion (Canadian) and 247 retail properties, including 13 under development.
The deal was announced after the close of stock market trading Monday. Earlier, RioCan units fell 15 cents to $17.75 on the TSX. In trading on the New York Stock Exchange, Cedar shares fell 4 cents to $5.64 U.S.