RioCan Real Estate Investment Trust (TSX: REI.UN) has entered into a firm purchase and sale agreement to acquire from KingSett Canadian Real Estate Income Fund LP its non-managing, 50% co-ownership interest in Yonge Sheppard Centre for an estimated $331 million, net of certain working capital adjustments.
Located at the intersection of Yonge Street and Sheppard Avenue in Toronto, the Centre is a nearly one million square foot, urban mixed-use property, consisting of 299,000 square feet of retail, 401,000 square feet of office, and 257,000 square feet of residential rental space. The residential rental component is a 361-unit, 36-storey tower known as Pivot which is currently under construction.
In 2011, RioCan and KingSett Capital through 50-50 joint venture acquired 100% of Yonge Sheppard Centre for $218 million. Since then the Centre has undergone extensive development.
Toronto based KingSett Capital is a leading private equity real estate investment firm.
photo credit: KingSett Capital
RioCan to Acquire KingSett Capital’s 50% Interest in Yonge Sheppard Centre; KingSett Capital Investing $100 Million in RioCan Units
TORONTO, June 06, 2019 (GLOBE NEWSWIRE) — RioCan Real Estate Investment Trust (“RioCan”, TSX:REI.UN) announced today that it has agreed to acquire from KingSett Capital’s Canadian Real Estate Income Fund (“KingSett”) its non-managing, 50% co-ownership interest in Yonge Sheppard Centre (the “Centre”) for an estimated $331 million, net of certain working capital adjustments. The parties have entered into a firm purchase and sale agreement, subject to customary closing conditions. As part of the transaction, KingSett will take a material equity position in RioCan through an investment of $100 million in RioCan units with a one-year lock-up agreement.
This transaction, upon closing, will bring RioCan’s ownership of this urban mixed-use, transit-oriented property to 100%. Located at the busy intersection of Yonge Street and Sheppard Avenue in Toronto, Ontario, the Centre is a nearly one million square foot, urban mixed-use property, consisting of 299,000 square feet of retail, 401,000 square feet of office, and 257,000 square feet of residential rental space. The residential rental component is a 361-unit, 36-storey tower known as Pivot™ which is currently under construction.
A transformative overhaul of the Centre’s retail and office space is near completion, which consists of recladding the façade of both the office tower and shopping centre, as well as various interior improvements to modernize the overall look and feel of the property. It repositions the Centre as a 24-hour hub with a strong and desirable tenant mix such as LA Fitness, Longo’s (scheduled to open this summer), Cactus Club Café (scheduled to open in 2020) and other new food and beverage tenants, as well as a daycare, a Montessori school and a community centre. Construction for the residential rental tower Pivot commenced in July 2018 with substantial completion expected in July 2020. Given its prominent location, subway access, forward thinking design and amenity package, Pivot will serve as an integral component of the RioCan Living™ residential portfolio.
Upon closing, this acquisition will accelerate RioCan’s major market and Greater Toronto Area presence and expand our RioCan Living portfolio. It will result in the Trust owning 100% of two iconic assets at two of the three intersections along the Yonge Street corridor in Toronto with intersecting subway lines, namely, Yonge and Sheppard and Yonge and Eglinton. RioCan recognizes that the Centre has significant income and value growth potential over the longer term similar to our Yonge Eglinton Centre in Toronto. Since its acquisition in 2007, Yonge Eglinton Centre has achieved an 8.2% compound annual growth rate in net operating income and an estimated $315 million, or 95%, in value creation over its costs including maintenance and capital expenditures as of the most recent quarter end. We expect Yonge Sheppard Centre to have a similar trajectory.
The estimated purchase price of $331 million, net of certain working capital adjustments, is based on capital costs incurred as of April 30, 2019, which will be further adjusted based on KingSett’s share of capital costs incurred from May 1, 2019 to the date of the transaction closing. As part of the consideration for this transaction, RioCan will assume KingSett’s share, or approximately $128 million, of the existing property debt and issue $100 million of RioCan units out of treasury to KingSett at the 5-day volume weighted average unit trading price of $26.25 as of June 5, 2019. KingSett has agreed to a one-year lock up on its RioCan equity investment, commencing from the date of transaction closing. The completion of the transaction is subject to customary closing conditions, including approval by the Competition Bureau of Canada and the Toronto Stock Exchange. The transaction is expected to close by the end of August 2019.
“The acquisition of the remaining 50% interest in Yonge Sheppard Centre is an important step forward in our continuous transformation to a major market, mixed-use focused REIT,” said Edward Sonshine, Chief Executive Officer of RioCan. “KingSett’s investment of $100 million in RioCan units positions them amongst RioCan’s larger institutional unitholders, and we are pleased at this demonstration of confidence in the long-term value of RioCan.”
“We are pleased to have worked with the exceptional team at RioCan over the last 8 years to plan and execute the re-imagining of Yonge Sheppard Centre,” said Jon Love, Chief Executive Officer of KingSett Capital. “We look forward to our continued partnership and are pleased to have the opportunity to expand our relationship in the role of equity investors where we see deep value.”
RioCan is one of Canada’s largest real estate investment trusts with a total enterprise value of approximately $14.1 billion at March 31, 2019. RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-oriented areas where Canadians want to shop, live and work. Our portfolio is comprised of 230 properties, including 14 development properties, with an aggregate net leasable area of approximately 38.3 million square feet including residential rental properties. To learn more about how we deliver real vision on solid ground, visit www.riocan.com.
For more information contact
RioCan Real Estate Investment Trust
Senior Vice President and Chief Financial Officer
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