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Canada's Mega-REIT Has Funds, Will Travel

RioCan Real Estate Investment Trust, the largest Canadian REIT, is joining the move by Canadian investors into the U.S. market. The Toronto-based company is launching a $1.5 billion joint venture with Ramco-Gershenson Properties Trust, which owns and operates community centers in the Midwest, the Mid-Atlantic and the Southeast. The venture will allow RioCan to build a U.S. portfolio, while Ramco-Gershenson will benefit from acquisition, development, property management and leasing fees.

RioCan, which operates community and power centers in Canada, will hold a 70 percent stake and Ramco-Gershenson will have a 30 percent interest. The deal calls for Ramco-Gershenson to contribute up to 18 of its shopping centers to the venture, with a total value of $450 million or more. The partnership will be different from Ramco's previous ventures, including those with Clarion Lion Properties Fund and Heitman Value Partners Investments LLC, in that it will have no time limit, said Dennis Gershenson, company president and CEO. In 2005, Ramco-Gershenson and Clarion Lion Properties entered into a $450 million joint venture partnership to acquire community shopping centers in Southeastern and Midwestern U.S. In 2006, the REIT formed a $75 million venture with Heitman Value Partners to invest in neighborhood, community and power shopping centers in metropolitan infill locations.

"We wanted someone who had very similar tenants in their portfolio or even exactly the same tenants," says Edward Sonshine, Q.C., president and CEO of RioCan. Wal-Mart, Staples and A&P are all on RioCan's tenant list. Wal-Mart, A&P and Staples’ rival OfficeMax are also prominent in Ramco-Gershenson’s portfolio. RioCan was attracted to Ramco-Gershenson because of its operating model, which focuses on community and power centers and pursues low-risk strategies on its own end.

Sonshine expects that the portfolio will have 60 percent core properties, 20 percent development initiatives and 20 percent redevelopment opportunities.

"This will be a very hands-on venture, with monthly meetings," he says.

As part of the deal, RioCan has also agreed to purchase a 4.5 percent stake in Ramco-Gershenson, at $36.39 per share. The company has the option to purchase an additional 4.5 percent stake in the U.S. REIT within the next three years, at $43.15 per share.

Other Canadian entities that have invested in U.S. properties include the diversified REIT CREIT and Legacy Hotels REIT, which focuses on the hospitality sector.

The transaction will be finalized in the first quarter of 2007.

Elaine Misonzhnik

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