U.S. retail real estate giant Kimco Realty Corp. is making good on its promise to do more business in Canada, splitting a $156-million purchase of 10 shopping centres with RioCan Real Estate Investment Trust.
The partners are buying a portfolio of properties in Ontario, Quebec and Nova Scotia from H&R Real Estate Investment Trust. The news comes two months after Kimco's chief investment officer David Henry told a Toronto real estate conference his company was interested in making more acquisitions in Canada.
“The bottom line is that we still have a really positive view of the long-term prospects for Canadian retail. It's hard to imagine how dramatic the differences have become between Canada and the U.S., where there has been so much damage resulting from the housing crisis,” Edward Boomer, managing director of Canadian operations for Kimco, said in an interview.
While some of Kimco's Canadian retail tenants saw a slowdown in sales over Christmas, things appear to be bouncing back for them, Mr. Boomer said. High prices at the gas pumps could dampen consumer spending, but that isn't enough to deter Kimco's interest in buying more Canadian real estate, he added.
Including Wednesday's acquisition, Kimco currently has interests in about $2-billion worth of Canadian real estate, and “absolutely” has plans to buy more, Mr. Boomer added.
In 2007 Kimco reported rental property revenues, before taxes and other expenses, of $682-million (U.S.). According to information on Kimco's web site, Canada represents 7.2 per cent of the company's revenue, making it its fifth-largest market on that basis. The company's largest markets by revenue, Florida and California, have been slammed by the subprime mortgage crisis.
One of the largest stumbling blocks in Canada is the lack of available properties for sale, along with the fact the best assets aren't any cheaper than they were at this time last year, putting prices at the top of the market, Mr. Boomer added.
RioCan has done well partnering with Kimco in the past, and was happy to strike up another partnership, said RioCan chief financial officer Rags Davloor.
The properties being acquired are in good shape, and close to fully occupied, primarily by large single tenants including Wal-Mart and Zellers, Mr. Davloor added.
“For the most part we purchased them for their solid cash flow,” he said.
RioCan sees lots of growth opportunities in Canada, including continuing its internal development program, and isn't considering buying any assets in the U.S., Mr. Davloor said.
The acquisition is an expected part of RioCan's growth strategy, and should add about a penny a year per unit to its funds from operations, Michael Smith, analyst at National Bank Financial, said in a research note. In 2007 RioCan reported funds from operations of $1.51 per unit.
In April RioCan completed a $150-million public equity offering, part of which it will likely use to fund the acquisition announced Wednesday, Mr. Smith added.
“RioCan has successfully positioned itself as an “offensive player” in the current credit environment, able to take advantage of opportunistic acquisitions such as this one by raising equity in April 2008 and repaying / refinancing debt. H&R, in contrast, is playing defence, selling this portfolio and recently issuing equity to partially fund The Bow development in Calgary,” Mr. Smith said in his note.
The Bow is a $1.1-billion skyscraper being developed by H&R as the new head office for natural gas producer EnCana Corp., and is slated for completion in 2011.
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