Canadian Tire to spin off real estate holdings into investment trust

Canadian Tire Corp. Ltd. announced Thursday that it will create a $3.5-billion real estate investment trust to unlock the value of its property holdings, with an initial public offering expected later this year.

The move follows on the heels of a similar plan by grocer Loblaw Companies Ltd.

It came as the high-profile retailer of general merchandise, sporting goods, financial services and automotive products and services announced a 2.9 per cent increase in first-quarter earnings amid a 1.7 per cent increase in total revenue.

The proposed new REIT would acquire a majority of the company's real estate, including a geographically diverse portfolio of some 250 properties comprised largely of Canadian Tire Retail stores, Canadian Tire anchored retail developments and one distribution centre.

Canadian Tire says the properties, totalling about 18 million square feet, have an approximate market value of $3.5 billion.

"We are executing a strategy that reinforces the strength of our company while pursuing new growth opportunities organically and through acquisition," president and CEO Stephen Wetmore said in a statement.

"Today's announcement regarding a REIT would increase CTC's financial flexibility, providing us with the ability to access funds at an attractive cost of capital as we continue to invest in and grow our business."

Investors liked the REIT news. Canadian Tire shares jumped 11.2 per cent, or $8.32, to close at $82.36 on the TSX.

Canadian Tire to own majority of new REIT

Canadian Tire owned properties currently comprise a total of about 25 million square feet and the company said that retail stores that are being considered for replacement, relocation, or further development would initially be retained and not be part of the REIT.

CTC would retain a significant ownership interest of 80 to 90 per cent of the REIT with the remainder of the REIT's units offered to the public via an initial public offering anticipated in the fall.

The company said the REIT's financial statements would be consolidated with CTC's financial statements and that it expected there would be only a minimal impact on consolidated net earnings, cash flow and debt metrics.

On the earnings front, Canadian Tire reported net income in the first quarter increase to $73 million or 90 cents peer share from $71 million or 87 cents in the same 2012 period.

Total revenue was up 1.7 per cent to $2.48 billion from $2.44 billion, while retail sales increase 0.8 per cent to $2.444 billion from $2.42 billion.

Canadian Tire employs more than 85,000 people at over 1,700 retail and gasoline outlets from coast to coast, including its almost 500 locally run Canadian Tire stores as well as Mark's and various corporate and franchised banners under FGL sports, including Sport Chek, Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.