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Choice Properties, Canadian REIT merging to form Canada's largest REIT

Choice Properties Real Estate Investment Trust and Canadian REIT signed an acquisition deal to create what will be Canada's largest REIT with an enterprise value of roughly C$16 billion.

Choice Properties will acquire all of Canadian REIT's assets and assume all of its liabilities, including long-term debt and residual liabilities. Canadian REIT will redeem all its outstanding units for C$22.50 in cash and 2.4904 Choice Properties units per Canadian REIT unit.

At the Feb. 14 closing price of C$12.49 apiece for Choice Properties units, the deal translates to C$53.61 per Canadian REIT unit, reflecting a 23.1% premium to the Canadian REIT closing unit price on the same day.

The total consideration will comprise roughly 58% Choice Properties units and roughly 42% cash. Canadian REIT unit holders will have the option to receive either C$53.75 in cash or 4.2835 Choice Properties units for each Canadian REIT unit, subject to proration. The maximum amount of cash payable by Choice Properties will be roughly C$1.65 billion, and roughly 183 million units will be issued.

The combined entity will have a diversified portfolio of 752 properties with 69 million square feet of gross leasable area. Of the portfolio, retail will account for 78% of net operating income, with the rest coming from industrial properties and office assets in Canadian markets.

Choice Properties owns, manages and develops retail and commercial real estate across Canada and has a roughly 44.1 million-square-foot portfolio with 546 properties. Canadian REIT owns a diversified portfolio of retail, industrial and office properties and is focused on acquisition and management.

Canadian REIT unit holders will own roughly 27% of the combined company.

A special meeting of Canadian REIT unit holders will be held on April 11 for a vote on the court-approved plan of arrangement. The deal requires the approval of at least 66 2/3% of the votes cast. The boards of both companies have deemed the transaction to be in the best interest of their respective unit holders.

Loblaw Cos., which holds roughly 82% of the voting interest in Choice Properties, has agreed to support the deal. Loblaw will own 62% of the pro forma entity following the transaction.

The transaction, which is expected to be complete in the second quarter, is subject to compliance with the Competition Act and certain other customary closing conditions.

Upon closing of the deal, Choice Properties President and CEO John Morrison will step down from his roles to serve as nonexecutive vice chairman of the combined company. Stephen Johnson will replace him as Choice Properties' president and CEO, while Rael Diamond will be the company's COO and Mario Barrafato will be CFO.

TD Securities Inc. is serving as financial adviser to Choice Properties and RBC Capital Markets is financial adviser to Canadian REIT.

Choice Properties' legal counsel is Torys LLP and Canadian REIT's legal counsel is Blake Cassels & Graydon LLP.