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

The announcement this morning states FCR shareholders will be offered $24.40 per unit via cash and shares, representing a 17 per cent premium to the REIT’s average share price over the past 20 days. FCR 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 FCR’s issued and outstanding units, including approximately $4.4 billion of First Capital assets – a needs-based retail portfolio, high-street retail properties, development and other financial assets; and
• Choice Properties is to acquire approximately $5 billion of necessity-based neighbourhood shopping centres, adding significant heft to its already segment-leading retail portfolio.

Choice is Canada's largest REIT with over 700 properties, 37 million square feet of leasable space and an 18-million-square-foot development pipeline.

“We are pleased to deliver immediate value to our investors through this transaction,” Paul Douglas, FCR’s board chair, 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, FCR’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

FCR 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.

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

"This transaction is truly transformational for Choice," Rael Diamond, president and CEO of Choice Properties, said in a call with analysts and investors following the announcement. "Opportunities to acquire assets of this quality and scale are extremely rare, especially when they are so closely aligned with our strategy."

Choice Properties forecasts the portfolio to generate full-year NOI of approximately $235 million in 2027.

Diversifying the Choice tenant base

"The assets we are acquiring consists of FCR's highest quality properties, primarily top performing open-air shopping centres. The portfolio totals over eight million square feet of leasable area with strong occupancy of 98 per cent. These assets generate stable cash flows while providing clear opportunity for future growth."

He also stressed the locations of the properties in the portfolio, as well as the opportunity to diversify the tenant base for Choice.

"What makes these assets particularly compelling is not only their quality but their locations in Canada's most densely populated urban markets. the portfolio is highly urban with 83 per cent of exposure from Toronto, Vancouver and Montreal..." Diamond said.

"This transaction meaningfully increases our exposure to high-growth, third-party retail tenants. On a pro forma basis third-party retail exposure increases by nearly 50 per cent based on gross leasable area. At the same time Loblaw remains a valued strategic partner and will represent approximately 61 per cent pro forma of our retail portfolio."

How Choice, KingSett will finance the deal

Choice Properties plans to issue $1.7 billion of new equity to help finance the acquisition, with the balance funded through debt, including the assumption of First Capital debt. 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.

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. 

“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.”

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.