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Empire to spin off properties into REIT

Will include malls, office buildings


Empire Co. Ltd. is hoping to capitalize on investors' thirst for real estate and income by spinning off part of its property holdings into a trust.

The new enterprise, to be called Crombie Real Estate Investment Trust, will initially own a mixed portfolio of 44 properties, including strip malls, enclosed shopping centres and office buildings. All the properties are part of Empire's long-standing real estate subsidiary, which has developed sites for other arms of the Sobey family holdings, including grocery retailer Sobeys Inc. and Empire Theatres Ltd.

Empire Co. signalled in a news release yesterday that the REIT plans to use its relationship with the Sobeys grocery chain to drive expansion in neighbourhood shopping centres in Ontario and Western Canada. The REIT, it said, will also look to increase rental income from existing properties.

"The focus will be on retail and on expanding outside Eastern Canada," said Empire's chief financial officer Paul Beesley.

Empire, based in Stellarton, N.S., plans to retain a 49.5-per-cent ownership stake in the REIT, subject to the effects of a 5-per-cent overallotment option granted to the underwriters.

Mr. Beesley said "the timing is good" for Empire to make this move, now that the uncertainty over taxation of income trusts has been removed.

Industry observers say the timing also is key because of a strong real estate market. High investor interest in the real estate sector and a shortage of stable, income-producing properties has sent prices soaring for prime offerings. Grocery-store-anchored malls have long been seen as a steady producer of cash flow, and the REIT's ties to Sobeys and the Empire theatre chain will give it a leg up in any expansion plans.

The REIT market also is looking for new offerings. Investment bankers have long proposed just such a spinoff to Empire executives, those familiar with the market said.

At the same time, plans by Bentonville, Ark.-based Wal-Mart Stores Inc. to roll out its superstore format in Canada, with heavy emphasis on groceries, is expected to cause some pain among food retailers in the coming years, as it has in the United States.

"This is a good window to do this," said one analyst who follows the sector.

Mr. Beesley said Empire plans to file a preliminary prospectus for the REIT, with further details within the next two weeks.

He said that while Empire plans to retain a significant stake in the trust, it will have an internal management structure. He said it will be up to that management to decide the REIT's future expansion plans.

© The Globe and Mail

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