Retail Traffic

RioCan Jilts Ramco-Gershenson

Canadian REIT RioCan Real Estate Investment Trust’s abrupt termination last week of its proposed joint venture with Ramco-Gershenson Properties Trust has left the American REIT’s president and CEO Dennis Gershenson feeling scorned.

It was a month ago that the two firms held a press conference detailing the $1.5 billion deal that would give RioCan, Canada’s largest REIT, entry into the United States. But without warning, according to Gershenson, RioCan suddenly backed out of the deal last week.

According to Gershenson, things were going along as planned until Monday, Jan. 8, when Ramco-Gershenson and RioCan executives had been discussing which properties should be entered into the joint venture. The following afternoon, Gershenson received a phone call from RioCan president and CEO Edward Sonshine. Gershenson says Sonshine told him that the deal was not going to work and that he would like to terminate the negotiations.

“There hadn’t been one conversation between us that there was any kind of a problem,” Gershenson says. “I’ve been in this business for 40 years and in every transaction I’ve been involved in, if one party is having difficulty, there is always an attempt to say ‘These are my problems.”

On Jan. 10, the day after Sonshine called Gershenson, RioCan issued a statement saying it had terminated the transaction with little explanation saying only that the deal “is not in the best interest of either party.”

RioCan executives did not return repeated calls from Retail Traffic seeking comment.

In an interview with Bloomberg, Canadian analyst Gail Mifsud, of Raymond James Ltd., suggested RioCan’s decision stemmed from its cautious nature. Another analyst, Philip Martin, of Cantor Fitzgerald, wrote in a research note that venturing onto the international stage might have proved trickier than RioCan anticipated.

“This [termination] is due, in our opinion to cross-border issues (such as taxes, etc.), not fundamental issues with the acquisition opportunities or Ramco’s portfolio,” he wrote in a note on Jan. 10. “We believe Ramco’s investment pipeline remains attractive, and the company will be able to execute on their growth plan.”

Many analysts say that RioCan will expand into the United States at some point, but “we do not believe management is currently pursuing other initiatives actively,” TD Securities analyst Sam Damiani wrote in another report.

On the domestic front, Ramco-Gershenson now is scrambling to find another partner for the deal.

The planned deal, split 70/30 between RioCan and Ramco-Gershenson, was supposed to focus on the acquisition of community and power centers in the United States. At the time, RioCan executives said they chose Ramco-Gershenson as its partner because of the company’s adherence to low-risk strategies and because it pursued the same tenants for its portfolio. Among the tenants the REITs have in common are Wal-Mart and A&P.

Gershenson says the company is sifting through other prospective suitors. The REIT’s previous joint venture partners include institutional investment firm Investcorp International Inc. and ING Clarion’s discretionary fund Clarion Lion Properties.

“We believe our reputation has not been besmirched by what has happened,” Gershenson notes.

In Gershenson’s view, the only source of dissatisfaction he could think of is that Ramco-Gershenson offered RioCan a couple of properties in secondary markets, as opposed to its desire for centers in major metro areas; but, he adds, “these were assets they we’re really excited about.”

Meanwhile, Ramco-Gershenson is determined to move on and is actively pursuing other joint ventures. On Jan. 8, the firm entered into a previously planned agreement with an investor advised by Heitman LLC to acquire up to $450 million of community shopping centers in Midwestern and Mid-Atlantic United States.

-- Elaine Misonzhnik
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