Loblaw files a preliminary prospectus to create one of Canada’s largest commercial real estate trusts.Fernando Morales/The Globe and Mail
Loblaw Cos. is getting ready to take a real estate investment trust public. Canadian Tire wants to do the same. They should have hustled a little more.
Loblaw and Canadian Tire shares are showing no signs that investors in the companies are worried about a smaller take from the REIT IPOs. Loblaw stock has been steadily rising, and Canadian Tire isn't giving up any of the ground it gained earlier in May on the news that it would create a REIT.
However, the REIT index suggests maybe both retailers missed their best chance to get the REIT out the door at top prices. Rising yields in the bond market, one of the benchmarks for pricing REITs based on their yields, have the real estate trust index in free fall. The Standard & Poor's Capped REIT index is down 6 per cent in May. The decline in the past week has been particularly sharp, taking the index back to the lowest levels of the year.
The yield on the 10-year government of Canada benchmark bond has jumped 40 basis points from its low in early May to 2.07 per cent as of Thursday. It's not clear yet whether this is a significant reversal in the bond market, where yields had steadily been moving lower, or just a head fake as we have seen before.
But for now, the math means you can't sell a REIT unit for the same high price you could three four weeks ago.
Into that suddenly weaker market, the two companies are looking at bringing what will be some of the bigger offerings in recent REIT history. That's on top of roughly $2-billion and counting of new REIT units that have been sold this year in Canada.
The first up is probably going to be Loblaw's Choice Properties REIT, which filed a preliminary prospectus late last week. Loblaw is said to be looking at launching the offering before the onset of the summer holidays in Canada, which would mean getting it done in coming weeks.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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