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RioCan to Invest $500M in U.S. Retail With Cedar Shopping Centers

Cedar Shopping Centers and Canada's Largest REIT Increase Strategic Alliance
February 10, 2010
Update Feb. 10, 2010: Canadian retail REIT, RioCan, has confirmed intentions it shared last fall to invest up to $500 million in high-quality, grocery-anchored U.S. shopping centers with U.S. retail REIT, Cedar Shopping Centers. Read on for details of its joint venture with Cedar.

RioCan to Invest $220M+ in Cedar Shopping Centers, published Oct. 27, 2009
Port Washington, NY-based shopping center REIT, Cedar Shopping Centers, Inc. (NYSE: CDR), and Toronto, Canada-based RioCan Real Estate Investment Trust (TSX: REI.UN) announced a strategic alliance under which RioCan agreed to a $40 million private placement investment of 6.67 million shares of Cedar's common stock at a price of $6.00 per share.

The share price represents a 5.6% premium over the company's closing share price on October 23, 2009. Additionally, RioCan would hold warrants to purchase 1.43 million shares of Cedar Common Stock at $7.00 per share (est. $10 million value), which would expire two years later. Cedar also agreed to a three-year standstill agreement with respect to RioCan's ownership of Cedar's common shares.

If all options in the agreement are exercised, RioCan could amass a 15% ownership interest in Cedar and as long as this interest stays above 9.9%, RioCan can maintain one director seat on Cedar's Board of Directors.

As part of the agreement, RioCan and Cedar entered into a joint venture involving seven grocery-anchored shopping centers totaling 1.1 million square feet that are currently owned by Cedar. Cedar agreed to sell an 80% share in this portfolio to RioCan for $176 million, which includes $75 million in debt assumption. Subject to lender consents, Cedar anticipates the closing dates on these properties will fall in the first quarter of 2010.

RioCan said that 40% of the rent from this 95%-occupied portfolio is generated by grocery tenants (Giant, Stop & Shop, Ahold, and A&P brands among them) with 10 years left on their leases and 75% is generated by national or regional tenants. Click here for details on each of the properties involved in this part of the transaction.

RioCan and Cedar also formed a joint venture to invest primarily in grocery-anchored shopping centers in the Northeast and Mid-Atlantic states, with plans to spend up to $500 million on such acquisitions over the next two years.
Under this partnership, RioCan would have the right of first refusal to be involved in any properties (supermarket-anchored, 50,000 sq. ft.+ in NY, NJ, PA, MA, CT, MD and VA) that Cedar may seek to acquire.

Cedar estimates that in aggregate, net proceeds from this strategic alliance with RioCan would amount to $100 million, consisting of the $40 million private placement and more than $60 million resulting from the joint venture on seven of Cedar's existing shopping centers, less closing costs and fees. Cedar plans to use the proceeds to reduce the outstanding balances on two revolving credit facilities dedicated to stabilized properties and development properties. Already, Cedar has received $220 million in commitments from participating lenders involved in the $250 million renewal of its credit facility for stabilized properties -- it expects to close the renewal by the end of this year.

Under both joint venture arrangements, Cedar would provide property management, leasing, construction management and financial management services for which it would receive standard fees. Cedar could also receive additional fees relating to acquisition, disposition, and financings activities under this joint venture.

Cedar currently owns and operates 124 centers totaling 13.2 million square feet that are primarily grocery or drug store anchored and located in the Northeast.

RioCan not only owns and manages Canada's largest portfolio of shopping centers (247 centers totaling 59 million sq. ft.), but it is also Canada's largest REIT, with a total capitalization of USD $7.32 billion as of September 30, 2009.

This is not the first time RioCan has announced a joint venture to break into the U.S. retail real estate market.

In December 2006, RioCan announced a $1.5 billion joint venture with Ramco Gershenson (NYSE:RPT), under which RioCan intended to acquire and develop a broad range of U.S. retail assets over the course of three years. RioCan also said it would amass up to a 9% ownership stake in Ramco through paying $43.50 per share in common stock. The venture was planned to be seeded with Ramco's contribution of $450 million of its owned shopping centers; but the deal never came to fruition as the two never agreed on which assets should be contributed into the portfolio.

In 2001, RioCan and Kimco created a cross-border stir when they formed a venture to fund joint acquisitions and development projects in Canada. Together the pair jointly owned approximately 8 million square feet of shopping center space in Canada, and Kimco was long rumored to be a potential suitor for buying its Canadian venture partner. But in 2006, RioCan said the agreement no longer offered the company acceptable returns on investment.

Details on the seven-center grocery-anchored portfolio:

  • Loyal Plaza: A 293,825-square-foot center located in Williamsport, PA that is anchored by a 66,935-square-foot Giant Foods (lease expires 2019), K-Mart, Staples, and Eckerd's Drugs.

  • Blue Mountain Commons: A recently completed 123,354-square-foot center located in Harrisburg, PA that is anchored by a 97,707-square-foot Giant Foods (lease expires 2029)

  • Sunset Crossing Shopping Center: A 74,142-square-foot center located in Scranton, PA that is anchored by a 54,332-square-foot Giant Foods (lease expires 2022).

  • Columbus Crossing Shopping Center: A 142,167-square-foot center located in Philadelphia, PA that is anchored by a 61,506-square-foot Super Fresh (lease expires 2020), Old Navy and AC Moore.

  • Stop & Shop Plaza: A free standing 54,511-square-foot Stop & Shop supermarket (lease expires 2026) located in Bridgeport, CT.

  • Shaw's Plaza: A 176,610-square-foot center located in Raynham, MA that is anchored by a 60,748-square-foot Shaw's supermarket (lease expires 2023), Marshalls and CVS.

  • Franklin Village Plaza: A 306,213-square-foot center located in Franklin, MA that is anchored by a 75,000-square-foot Stop & Shop (lease expires 2026), Marshalls, Bath & Body Works and Bank of America.

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