LFL announces intention to create a real estate investment trust
TORONTO – Leon’s Furniture Limited (LFL) has announced its intention to create a real estate investment trust (REIT) which, in turn, is expected to unlock significant shareholder value and help accelerate this country’s largest full-line furniture and appliance retailer plans for growth in the coming years.
In a statement, the publicly held parent company of Leon’s and The Brick, noted it has an attractive – and wholly-owned – real estate portfolio of approximately 5.2 million square feet that will provide the proposed REIT with a significant portfolio of assets.
LFL is also exploring various strategic alternatives to the REIT transaction including an initial public offering of the REIT or a shareholder-approved spin-out to existing LFL shareholders.
However, the company intends to maintain a majority ownership interest in the REIT. Analysts have valued LFL’s real estate holdings at more than $900 million.
The company currently operates 306 retail stores under five banners: Leon’s, The Brick, The Brick Mattress Store, Brick Outlet and Appliance Canada. It also has four million square feet of warehouse space, operating distribution centres in Toronto, Edmonton, Dartmouth, Nova Scotia; and Delta, British Columbia. LFL owns 82% of the stores operating under the Leon’s banner and 8% of those flying The Brick.
“The creation of the REIT is expected to surface the value that is currently hidden within the company’s significant real estate portfolio, while ensuring both management teams are able to execute value-maximizing strategies for shareholders. Capital that LFL receives as part of this transaction is expected to go toward growth and efficiency opportunities, including accelerating the modernization of the company’s distribution centre footprint,” LFL president and chief executive officer Mike Walsh said.
“The creation of this REIT will help to ensure that optimal decisions with respect to value creation are made for all businesses currently under the LFL umbrella – retail, ancillary businesses and real estate,” added LFL chief financial officer Constantine Pefanis.
“Access to incremental capital will enable us to accelerate the growth of our retail footprint and invest in the optimization of our operating platform, which will help position the company for further success,” he continued, “The REIT will also provide LFL with ongoing access to a source of lower cost capital for growth, while giving the REIT an embedded growth pipeline. The company’s real estate portfolio is very attractive and the REIT will have a mandate to grow and diversify the portfolio outside of the LFL network, for the benefit of all stakeholders.”
LFL statement also said the timing of the transaction will be subject to prevailing market conditions and receipt of required regulatory approvals including that of the Toronto Stock Exchange. It is also expected that, for financial reporting purposes, the REIT will be consolidated with LFL’s financial results.
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