The main points of Loblaw Companies Ltd.'s real estate initial public offering were made clear in its press release. The retailer will spin out properties worth about $7-billion into a new real estate investment trust, giving Loblaw some cash to do things like pay down debt and buy back shares.
But that was just the big picture. On the company's conference call with analysts, chief executive officer Galen Weston Jr. and his team went into more detail about the specifics of the pending transaction, and what it will mean for things like the corporate structure. Five answers to key questions are below.
How will the REIT be structured within Loblaw?
The REIT will own about 35 million square of feet of Loblaw's 47 million square feet of properties. Once they're spun out, Loblaw will pay rent to the REIT at market prices. The company already accounts for an internal market rent, and the REIT will simply lock that in for a long-term rate. Management doesn't expect rent payments to reduce Loblaw's earnings because the REIT will pay the retailer distributions.
As for financial reporting, the REIT will be a subsidiary of parent company Loblaw, and Loblaw's P&L will have the REIT in it. Quarterly results will simply have three segments: real estate/the REIT, retail and financial services.
Why now, and what's the IPO timing?
"We've looked at this opportunity many times over the years," said Mr. Weston. "Many people have come forward ... and pitched this idea." Until now they've always kept it in the back of their minds, but "as we looked at the circumstances over the last six to nine months," it was obvious that now was the time. No other details were provided. The REIT is expected to go public in mid-2013. "We dont' think we'll be able to do it any sooner than that," said Jane Marshall, executive vice-president of Loblaw Properties Ltd.
Will the IPO be treasury or secondary shares?
This answer wasn't very clear. At first Ms. Marshall said it would be a treasury offering, which would mean the REIT issues brand new shares and then keeps the money raised. However, she later said the proceeds would fill Loblaw's offers, which more or less makes it a secondary. On a separate note, the REIT will initially be capitalized with intra-company debt from Loblaw, and will pay this back over time by raising money on its own in the public markets.
Will the REIT's properties be the same quality as those Loblaw keeps?
"Definitely," Ms. Marshall said. And over time the REIT plans to buy more of them in, as well as add non-shopping centre properties to its portfolio. More on this to come. When asked what types of properties could be added, Mr. Weston said, "It's a little bit too early to tell you that."
What will the REIT's ownership structure look like?
There are no firm details yet as to how big the IPO will be. But management said Loblaw will likely own about 80 per cent of the REIT.