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SmartCentres Inc. will start testing online purchase stations in three of its Toronto-area shopping centres.Fred Lum/The Globe and Mail

Calloway Real Estate Investment Trust is purchasing SmartCentres and changing its name to SmartREIT in a deal that will create one of Canada's largest retail landlords.

For $1.16-billion, Calloway will acquire 24 shopping centres, mainly in Ontario and Quebec, 16 of which are anchored by Wal-Mart Stores Inc. The properties are 99.7-per-cent occupied and existing leases with retail tenants average 12.6 years, Calloway president and chief executive Huw Thomas said.

The deal also includes nearly two million square feet of development space. Calloway paid an additional $55-million for SmartCentres' intellectual property, including its trademark Penguin logo, and contracts and retail development and leasing expertise.

"The proposed transaction will reinforce our position as a leading Canadian retail REIT," Mr. Thomas said in a call with investors. "This transaction represents a very sizeable increase in our high-quality portfolio of real estate and will add to both our existing footprint and our future pipeline."

The deal will cement Calloway's position as the largest landlord to Wal-Mart in Canada, boosting its assets to $8.3-billion and 31 million sq ft of retail space in more than 120 shopping centres. The company also intends to expand its plans for mixed-use development and add SmartCentres' real estate development and leasing expertise to its operations.

While SmartCentres founder Mitchell Goldhar will "not be directly involved in the day-to-day business" of the new REIT, he will become chairman of the board of directors. He also signed a five-year, $17.5-million contract to act as a strategic adviser to the company on its mixed-use projects. As part of the agreement, Mr. Goldhar will continue to own 55 retail properties and another 850 acres of development land.

"Both Calloway and SmartCentres have benefitted enormously from Mitch's vision, his exceptional industry relationships and his real estate expertise," Mr. Thomas said. "I and the rest of the group are very pleased that he'll continue with us into the future."

Two hundred SmartCentres employees will move to the newly formed REIT, as will chief operating officer Peter Forde and chief development officer Mauro Pambianchi, who will both join the executive team.

Mr. Goldhar linked up with Wal-Mart Stores Inc. more than two decades ago, before big-box stores and power-centre malls that housed them in open-air shopping centres became a common sight in Canadian suburbs.

He helped Wal-Mart's founding Walton family set up its first stores in Canada in 1994, after it bought 122 Woolco stores. But he also staked out other properties for further expansion opportunities. In the United States, Wal-Mart counted heavily on building its business in small towns while leaving a trail of bankrupt retailers in its wake. In Canada, a similar phenomenon developed as Wal-Mart overtook smaller, weaker players.

In the early 2000s, Calloway REIT signed deals with Mr. Goldhar, who continued to turn vacant lots and farmers' fields into Wal-Mart–anchored power centres across the country. He teamed with Wal-Mart, selling his big-box properties to the REIT in return for an equity stake in the firm. Under terms of the deals, he retained the management contract on the sites along with the accompanying steady income.

Mr. Goldhar, who became Calloway's largest investor, got to watch his shares of the small REIT grow in value as new investors piled in, attracted by the Wal-Mart factor.

Mr. Thomas said the deal would be financed by $644-million of assumed debt, a $200-million bought deal to a syndicate led by CIBC and a $160-million issuance of class B units in Calloway limited partnerships to Mr. Goldhar and other vendors.

The deal is expected to close at the end of next month, after a vote by unit holders on May 26.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
WMT-N
Walmart Inc
-0.91%60.17

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