Canadian Tire Sells, Leases Two Distribution Centers in Deal with H&R REIT

Canadian Tire Corp. Ltd. is selling two distribution centers for approximately $196 million in a deal that will see the automotive, hardware and sporting-goods giant lease the properties back from a major Toronto-based property trust. Canadian Tire said Tuesday it expects to book a pre-tax gain of about $43 million from the sale of the properties to H&R Real Estate Investment Trust. The retailer will use the proceeds to finance a previously announced plan to renovate, replace and add stores over the next five years.

From Canadian Press

TORONTO — Canadian Tire Corp. Ltd. is selling two distribution centers for approximately $196 million in a deal that will see the automotive, hardware and sporting-goods giant lease the properties back from a major Toronto-based property trust.

Canadian Tire said Tuesday it expects to book a pre-tax gain of about $43 million from the sale of the properties to H&R Real Estate Investment Trust. The retailer will use the proceeds to finance a previously announced plan to renovate, replace and add stores over the next five years.

“The current real estate environment is favorable for this type of transaction,” Canadian Tire President Wayne Sales said in a release. “We were able to take advantage of market opportunities for the sale and leaseback of the distribution centers in a manner that maintains our operating flexibility while freeing up capital to redeploy in the business.”

The two distribution centers are in Calgary and Brampton, Ont., northwest of Toronto. Canadian Tire has a third distribution center, also in Brampton, that’s not included in the deal with H&R, the retailer’s spokeswoman Lisa Gibson said in an interview.

Canadian Tire stores operate on owned and leased properties, she said.

“Currently as part of our strategic plan, we are looking at ways to unlock some of the value in these assets,” Gibson said.

In August, Canadian Tire announced an approximately $38-million sale-leaseback deal for its Cambie Street store in Vancouver, with the company realizing an $7.6-million pre-tax gain in that transaction with RioCan, another major shopping mall trust.

Financial terms of the leaseback deal between H&R and Canadian Tire were not released.

“The acquisition will be accretive to our unit holders, and increases the size of our portfolio by almost six percent,” H&R president and CEO Tom Hofstedter said in a separate release.

CIBC World Markets analyst Rossa O’Reilly said there is competition among all real-estate investors to buy properties with creditworthy customers and they’re willing to take a lower yield to do so.

“Here, we’re looking at large amounts of land, notably in Brampton,” he said. “Eventually, when the lease is up it will either be renewed or else there will be alternative uses for the property, which they would expect to a substantial capital gain.”

O’Reilly said the sale-leaseback deal with Canadian Tire appears to be a good one for H&R.

“The deal should be accretive for them and a very high-quality asset and tenant,” O’Reilly

The sale-leaseback model has been around for some time and makes sense for both sides in the transaction, Raymond James analyst Gail Mifsud said.

Shares of Canadian Tire gained 19 cents to close at $57.72 Tuesday on the Toronto Stock Exchange.

Units of H&R, which owns a North American portfolio of 34 office, 106 industrial and 88 retail properties, added 25 cents to close at $17.13.

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