Transaction overview
Choice Properties REIT (CA), one of Canada's largest real estate trusts, acquired First Capital REIT (CA) for a deal valued at approximately $2.5 billion on April 16, 2023. This acquisition aims to bolster Choice Properties' presence in urban markets and diversify its tenant base by adding a significant portfolio of shopping centres across British Columbia, Alberta, Ontario, and Quebec.
Deal structure and financing
The transaction's exact close date has not been disclosed, but it is known that the deal involved a cash-and-unit exchange. First Capital unitholders received $19.24 in cash and 0.3186 units of Choice Properties per First Capital unit, with each unit valued at $24.40 based on the closing price of Choice Properties shares on the Toronto Stock Exchange (TSX) on the day prior to the announcement. The deal was structured without debt financing details being publicly disclosed.
Citigroup Global Markets Inc. and Firmament served as lead financial advisors to Choice Properties, while BMO Capital Markets and CIBC World Markets Corp. were First Capital's financial advisors. Under the terms of the agreement, First Capital's portfolio is divided between Choice Properties and KingSett Capital, with KingSett taking on approximately $4.4 billion worth of assets from First Capital.
Strategic context
Choice Properties' rationale for acquiring First Capital REIT lies in its desire to expand into urban markets and diversify its tenant base beyond Loblaw Cos. Ltd., which is already a significant tenant within Choice Properties’ portfolio. This acquisition adds 50 grocery store tenants that are competitors of Loblaw, as well as 65 additional locations operated by Loblaw or Shoppers Drug Mart.
First Capital REIT's decision to divest its portfolio stems from the company’s strategic shift and the opportunity to unlock value for unitholders amid renewed optimism in Canadian real estate markets. The deal is viewed positively by both companies, with First Capital CEO Adam Paul noting it as an excellent transaction for investors. Choice Properties' strategy has been focused on acquiring assets that align closely with its urban market expansion plans.
Regulatory path
The Competition Bureau of Canada reviewed the acquisition due to the significant overlap in retail properties occupied by Loblaw and its competitors. However, according to Simone Cole, General Counsel of Choice Properties, extensive work was done to address potential competition concerns before submitting the deal for review. No specific remedies were disclosed as part of the announcement; however, both companies expressed confidence regarding the approval process.
Given the size and significance of the transaction within Canada's real estate sector, regulatory scrutiny focused primarily on antitrust considerations rather than other jurisdictional requirements or cross-border implications. The timeline for regulatory approvals was not publicly specified but is expected to be a key factor in determining when the deal will close fully.