Loblaws will spin off real estate into $7B trust

Loblaw Companies Ltd. plans to create one of the largest real estate investment trusts in Canada to unlock value for shareholders.

The grocery chain operator says it plans to contribute a significant portion of its real estate assets with a current market value of more than $7 billion to the planned REIT.

REITs are generally perceived to be stable publicly traded securities that income investors prize for their ability to pay out steady and hefty dividends.

Loblaws currently owns about 47 million square feet of retail space across Canada, worth some $9 billion to $10 billion. The company says it will initially put 35 million square feet of that into the REIT.

Units of the REIT are expected to be sold in an initial public offering expected to be completed in mid-2013, subject to regulatory approvals.

"The creation of the REIT is expected to build long-term value both for Loblaw and the REIT," Loblaws executive chairman Galen G. Weston said in a release.

Investors cheered the news, pushing Loblaws shares up 23 per cent to $41.46 on the TSX, it's highest level since 2010.

Details on pricing and the number of units to be offered were not disclosed. However, Loblaw said it "intends to retain a significant majority interest."

"We expect the REIT to not only unlock value for our shareholders, but also increase our financial capacity to pay down debt, buy back shares, and create a long-term source of capital to invest and grow," Weston said.