KingSett Capital and Choice Properties REIT (CHP-UN-T) have an agreement to acquire First Capital REIT (FCR-UN-T) in a $9.4 billion transaction that, if completed, will be one of the country’s largest real estate transactions in years.

The announcement this morning states First Capital shareholders will be offered $24.40 per unit via cash and shares, representing a 17 per cent premium to First Capital’s share prices over the past 20 days. First Capital states that is an all-time high share price. It also represents an eight per cent premium to its net asset value of $22.57 per unit, the announcement states.

The transaction has two main elements:

• KingSett is to acquire First Capital’s issued and outstanding units, including approximately $4.4 billion of First Capital assets, comprising a needs-based retail portfolio, high-street retail properties, development and other financial assets; and
• Choice Properties is to acquire approximately $5 billion of First Capital’s necessity-based neighbourhood shopping centres, adding significant heft to its already segment-leading retail portfolio. Choice is Canada's largest REIT.

“We are pleased to deliver immediate value to our investors through this transaction,” Paul Douglas, chair of First Capital’s board of trustees, said in the announcement. “Supported by the recommendation of a special committee comprised of independent trustees, the First Capital board believes this transaction is in the best interests of First Capital unitholders. Accordingly, the board recommends that unitholders vote in favour of the transaction.”

“This is an excellent transaction for our investors, which recognizes their longstanding support and commitment to First Capital,” added Adam Paul, First Capital’s president and CEO, in the release. “I am deeply grateful to our employees – many of whom will continue to support the assets acquired by KingSett and Choice – as well as to my partners on the executive leadership team, who have remained singularly focused on what was in the best interests of First Capital unitholders, and whose diligence and work ethic were critical in bringing us to this point.”

Additional details of the transaction

First Capital lists a portfolio of 198 properties across Canada on its website. The largest concentration (82 properties) is in the Toronto and SW Ontario region, with assets also in Ottawa; Montreal and Gatineau in Quebec; Calgary and Edmonton; Metro Vancouver and Victoria. 

The vast majority of the properties are anchored by major grocery or pharmacy retailers or other "needs-based" stores. Approximately 65 are anchored by either Loblaw banners and/or Shoppers Drug Mart pharmacies, which fall under Loblaw and George Weston Ltd., ownership. Loblaw/Weston is the prime investor in Choice Properties REIT.

George Weston Limited (WN-T) is committing $600 million in equity to First Capital REIT to support its portion of the transaction.

“This acquisition is expected to enhance the quality of Choice Properties’ portfolio and strengthen its long-term growth profile," said Richard Dufresne, president and chief financial officer of GWL, in a separate release. "Our continued majority ownership underscores our confidence in Choice Properties’ ability to deliver stable and growing cash flows and create long-term value for its unitholders and GWL shareholders.”

Choice Properties expects to finance the acquisition through the issuance of approximately $1.7 billion of new equity, with the balance funded through debt, including the assumption of First Capital debt.

KingSett states it has secured all financing required to complete its portion of the transaction. Funding will be provided by KingSett Real Estate Growth LP No. 8 and debt financing from TD Securities Inc. and Desjardins Group. 

The transaction is not subject to any financing condition.

“This transaction comes at a time when we are seeing renewed optimism and positive momentum in Canadian real estate,” Rob Kumer, KingSett's CEO, said in the release. “We have partnered with Choice Properties to align the right assets with our respective strategies to deliver maximum value to First Capital’s unitholders. We look forward to working with First Capital’s tenants, partners and other stakeholders in the years ahead.”

Choice portfolio includes operating, under-development assets

The Choice Properties acquisition portfolio comprises approximately $4.8 billion – or eight million square feet – of income-producing assets, along with approximately $200 million of properties under development. 

Choice Properties forecasts the portfolio to generate full-year NOI of approximately $235 million in 2027, with an annual growth rate of approximately 3.5 per cent in the near-term.

“This is an exciting and transformative transaction that will solidify Choice Properties as Canada's leading REIT,” Rael Diamond, president and CEO of Choice Properties, said in the release. “Choice Properties is acquiring best-in-class, necessity-based neighbourhood shopping centres that will significantly strengthen our portfolio.

"We believe this is a unique and compelling opportunity that will increase our presence in urban markets and further diversify our tenant base. Importantly, we expect the combination of these assets with our existing portfolio will deliver enhanced long-term growth and value for our unitholders.”

The transaction remains subject to regulatory, shareholder and other approvals. If there are no issues or delays, the buyers expect it to close in the latter half of this year.

CHECK BACK FOR MORE: The parties have scheduled a conference call with investors at 8 a.m. RENX will update this breaking news article with additional information following the call.