Brascan Corp.'s Brookfield Properties Corp. said it's banded together with a group of institutional investors, including the Canada Pension Plan Investment Board, to buy O&Y Real Estate Investment Trust and O&Y Properties Corp. for about $2-billion.
O&Y chief executive Philip Reichmann put both of O&Y's public companies on the block in February after the businesses grew almost tenfold over the past decade, most recently in a booming real-estate market. Toronto-based Brascan was widely expected to bid for them.
"We have completed a thorough auction for O&Y REIT and O&Y Properties and have achieved full value for unitholders," said Mr. Reichmann, in a statement. "The Brookfield consortium clearly recognizes the inherent quality and stability of O&Y REIT's portfolio, which we have built over the past several years."
Mr. Reichmann is the chief executive officer of both O&Y Real Estate Investment Trust, and its parent company, O&Y Properties Corp., which counts the Reichmann family as its largest shareholder.
Speaking on the company's conference call today, Mr. Reichmann said the portfolio attracted interest from around the world. "In the end, it turned out the guys down the road were able to pay the best price."
Mr. Reichmann hasn't said what he plans to do with the proceeds. In February, he indicated he'd like to create value at another company, the way he did at O&Y, and he didn't rule out a return to real estate.
Brookfield will put up 25 per cent of the equity, or about $200-million, and become property and asset manager for the portfolio. The CPP Investment Board will provide 50 per cent of the equity for the portfolio.
For Brookfield, the move allows it to expand in key markets of Toronto and Calgary.
"The O&Y portfolio complements our existing portfolio, providing us with additional quality assets in two of our core markets, Toronto and Calgary, and expansion into four new markets," said Ric Clark, Brookfield's president and chief executive.
For the CPP's investment arm, the move allows it to diversify its portfolio further into real estate.
Under terms of the deal, the consortium will buy all of O&Y Properties' shares for $13 a share, a 36-per-cent premium over the 30-day average trading price before the Feb. 15 announcement of the sale process.
As well, it will buy all the assets and liabilities of O&Y REIT, which will subsequently redeem all of its limited voting units for $15.50 per unit, an 8-per-cent premium to the average share price prior to Feb. 15.
O&Y Properties owns First Canadian Place in Toronto and a 42-per-cent interest in O&Y REIT.
O&Y REIT owns 24 office properties, as well as O&Y Enterprise, which manages and provides services to 35 million square feet of properties across Canada. The companies have a presence in six Canadian markets, principally in Toronto, Calgary and Ottawa.
O&Y's board has approved the sale.
Units of O&Y's income trust fell 62 cents or 3.9 per cent to $15.50 while O&Y Properties shed 49 cents to $12.85. Brookfield rose 62 cents to $33.15.
With files from reporter Elizabeth Church.