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A CP Rail car at the Canadian Pacific Aberdeen Yard in Hamilton, Ont., on Oct. 20, 2014.Peter Power/The Globe and Mail

Canadian Pacific Railway Ltd. has formed a partnership to develop its portfolio of surplus real estate, as the company looks for new ways to boost cash flow and shareholder value.

The joint venture with Toronto-based real estate company Dream Unlimited Corp. will develop more than 30 unused pieces of CP land in major North American cities, including Calgary, Montreal, Toronto and Chicago.

"We think there's tremendous value to be unlocked from these properties," said Mark Wallace, CP's vice-president of corporate affairs, who will head the venture called Dream Van Horne Properties, named in part for one of CP's first presidents, Sir William Cornelius Van Horne.

The project is the result of a study of the company's assets that began three years ago and identified more than 45 properties – 4,000 acres – suitable for development, lease or sale.

CP will provide the land while Dream will provide the expertise to build the developments, which will include commercial, residential, industrial and mixed uses.

The announcement on Tuesday did not put a dollar value on the portfolio, but analysts and markets have been expecting CP to tap into real estate worth $1-billion. Hunter Harrison, CP chief executive officer, has been saying for more than a year the Calgary-based company wanted to sell real estate worth $2-billion as part of its efforts to become leaner and more efficient.

CP spokesman Martin Cej said the company is not ruling out the sale of any real estate.

"Because the properties are so diverse, development decisions will be made over time and we would consider industrial, commercial, residential, mixed use, whatever is appropriate for the properties. Some of the properties are urban, right downtown Montreal, and some are rural. It will depend entirely on Dream's expertise and conversations with the communities. We're wide open to whatever's the best," Mr. Cej said.

The joint venture will focus on rural and urban properties in North America, including Schiller Park, a 75-acre site in Chicago; Obico, a 74-acre site in Toronto; the 92-acre South Edmonton Yard; and Montreal's Lucien L'allier, a three-acre site. Land in Vancouver, Calgary and Vancouver will also be eyed for development.

Royal Bank of Canada analyst Walter Spracklin said the news was good for the railway, but his financial forecasts for the company are not changed, pending discussion with management on the timing of the venture and the expected cash flow.

"We view this announcement favourably as the deal helps CP execute on its long-standing objective of monetizing surplus real estate across the network," Mr. Spracklin said in a note to clients on Tuesday. "The company had previously identified $1-billion of excess real estate; therefore, a key question for management is what proportion of the surplus portfolio is included in the joint venture."

Dream Unlimited is a publicly traded company that manages more than $14-billion worth of real estate in North America and Europe. The joint venture will be run by a four-person board, two from CP and two from Dream.

Development on some of the properties could begin as early as next year, Mr. Wallace said by phone from Calgary. "This is a really large portfolio. We've got a portfolio of about 30 here with potentially more over time that would come into the joint venture so getting our heads around a large portfolio like this will take some time," Mr. Wallace said. "These properties have been sitting around CP for some time. These are underused properties; they are not earning their keep. We have found a partner who shares the same values and the same sense of urgency and the same sense of creating long-term shareholder value as we do."

Benoît Poirier, analyst with Desjardins Securities Inc., said any cash generated by the joint venture will make the company shares more attractive, and that he expects the company to begin to show returns on the project in two to three years.

"This announcement reflects CP management's strong ability to create value for its shareholders," Mr. Poirier said.

Since taking the top job at CP in 2012 after a boardroom battle, Mr. Harrison has slashed costs and boosted efficiency at what was once North America's poorest performing rail company. The stock price under Mr. Harrison has risen by almost 200 per cent to $219, and the operating ratio, a closely watch measure of efficiency, has improved to 62.8 per cent from 83 per cent.

"The idea was to create one of the best operating railroads in North America, bring down the operating ratio and optimize assets," Mr. Cej said. "This is just another one of the assets and it's taken a while for the company to evaluate and organize all the real estate assets and now we know what to do with it. So the next platform is the company is poised to grow, and this is part of that."

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