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Reichmann in First Canadian Place replay: Hopes to buy back tower
Garry Marr
11 May 2005
National Post

Paul Reichmann wants to buy back First Canadian Place, the giant Toronto office tower he helped build 30 years ago and which today still stands as one of the most valuable properties in the country.

The 72-storey tower at Bay and King streets, Canada's most expensive intersection, is the jewel in the real estate portfolio that O&Y Properties Corp. and O&Y Real Estate Investment Trust have put on the block.

The man behind the sale is Philip Reichmann, chief executive of O&Y, and Paul's nephew by way of his brother Albert.

"It was the right business decision to sell," Philip Reichmann said yesterday, with the deadline for final bids midnight tonight. "We have checked our emotions at the door."

The battle for who will win control of O&Y Properties and O&Y REIT, whose assets are valued at more than $2-billion, counting debt and equity, is down to two participants.

In one corner is Paul Reichmann, who has teamed up with financier Gerry Schwartz' Onex Corp. and IPC US Real Estate Investment Trust. Paul Reichmann holds a significant interest in IPC, which will take a small stake in a successful offer and in return get to manage 24 properties, including First Canadian Place.

It's no secret Onex has been looking for real estate. In January, Onex said it would put US$200-million into Onex Real Estate Partners LP to invest in real estate properties across North America.

The main problem for Paul Reichmann's team is the other bidder is Brascan Corp. Brascan is teaming up with the powerful CPP Investment Board, still trying to fill a self-imposed mandate to acquire $8-billion in real estate, and Alberta Treasury Branches.

Philip Reichmann will not talk about the final contestants, but said a decision on an actual winner could be made next week.

Other players that expressed interest are GWL Realty Advisors, which was looking at a bid with Lehman Brothers, and the Ontario Teachers' Pension Plan Board. As well, a number of German and Israeli firms have also shown interest.

Some observers have suggested that Philip Reichmann and his family may not want to sell to his kin. "They don't want to look like Paul is bailing them out," said one source.

Others say it's not a factor. "[O&Y] will sell to the highest bidder and that's all," another source believes.

First Canadian Place has a special spot in Reichmann family history: it was the first tower built by Olympia & York, the company founded by Paul, Albert and brother Ralph. At their height, the brothers were worth more than $14-billion, but were forced into bankruptcy in 1992.

O&Y Properties bought back the tower in 1999 from First Place Tower Inc., a company created by the former bondholders of Olympia & York who took control of First Canadian Place.

O&Y Properties, which owns 42% of the REIT, put itself on the block on Feb. 15 after seeing its shares trade well below what executives felt the company was worth. The stock has climbed about 30% in value since the move.

ALL IN THE FAMILY?

1975 Olympia & York, founded by the Reichmann brothers, Paul, Albert and Ralph, builds First Canadian Place
1992 Brothers forced into bankruptcy
1999 Albert's son Philip buys tower from bondholders
2005 Philip's uncle Paul teams with Onex and IPC to bid for the tower

 

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Brookfield Properties Corp. buying O&Y REIT and O&Y Properties for $2 billion
TARA PERKINS Wed Jun 1, 6:10 PM ET

TORONTO (CP) - O&Y Properties Corp., the commercial real estate giant that owns Canada's tallest office building, ended a five-month search for a buyer Wednesday, accepting a $2-billion takeover offer from an investment group led by Brookfield Properties Corp. and the Canada Pension Plan Investment Board.

Brascan Corp.-owned Brookfield, which has head offices in Toronto and New York, teamed up with the CPP pension fund and an unnamed Canadian investor to win control of O&Y in the largest real estate deal in Canadian history.

The $1 billion investment by the CPP fund - giving it half of the acquired company - is the board's biggest real estate deal ever and continues a strategy to invest in commercial property and other hard assets that pay consistent returns.

Founder Philip Reichmann put O&Y up for sale, along with the O&Y real estate investment trust, in February, after exploring strategic options for the property owner in January.

The buying consortium is paying $15.50 per unit in cash for O&Y REIT, an eight per cent premium over the February trading price and $13 per share for O&Y Properties, which holds a 42 per cent stake in the investment trust.

Reichman, O&Y Properties' chief executive, said he believes the deal offers shareholders and unitholders full value and pegs the company's flagship property, downtown Toronto's First Canadian Place, at $1.1 billion on a freehold basis.

First Canadian Place in the heart of the Bay Street financial district in downtown Toronto is headquarters to Bank of Montreal and was built in the 1970s by Olympia & York Developments, a company started by Philip Reichman's uncle Paul Reichmann, but which went bankrupt in the property recession of the early 1990s.

Other O&Y properties include the Maritime Life Tower in Toronto and office buildings in other Canadian cities.

Philip Reichman, who will leave the company once the deal closes, said the sale "feels good, because we created the value."

"This is a company that has some 800 employees from coast to coast and everybody did their part to build this company into a great company," the real estate magnate said in an interview.

For several years, Toronto-based O&Y has been assembling a portfolio of 25 office properties in six Canadian markets, principally Toronto, Calgary and Ottawa. Reichmann said in February that O&Y and the REIT had a combined value of more than $2 billion.

After marketing the company to real estate investors across North America and overseas, "it turned out the guys just down the road were able to pay the best price," he said Wednesday.

Toronto conglomerate Brascan owns half of Brookfield Properties, which saw its shares rise 27 cents to close at $32.80 on The Toronto Stock Exchange Wednesday. Units of O&Y REIT lost more than four per cent, or 72 cents, to close at $15.40. Meanwhile, shares in O&Y Properties (TSX:OYP - news) fell 49 cents to $12.85.

About 50 investors shopped around O&Y after the company announced it was for sale, Reichmann said, but there were "only 29 or 30 that spent quality time on it," and that list was culled down to nine final bidders.

The winning consortium had a hometown advantage. "Being local people, they have local knowledge and a greater understanding of the marketplace, and therefore the portfolio, than anyone else would," Reichmann said.

Brookfield CEO Ric Clark said O&Y's portfolio complements the company's existing holdings by boosting its presence in two of its core markets - Toronto and Calgary - and expanding its holdings to four new cities.

Brascan spokeswoman Katherine Vyse said the consortium is rounded out by a large institutional Canadian investor which does not want to be identified. Brookfield is contributing one-quarter of the equity for the deal, and will manage the portfolio's assets.

The boards of both O&Y REIT and O&Y Properties have approved the sale, which requires the approval of two-thirds of the investment trust's unitholders and Competition Act clearance.

O&Y REIT unitholders will meet in early July to vote on the deal. O&Y Properties has agreed to vote in favour of the transaction, which is expected to close in mid-July.

The sale of the REIT is conditional on the consortium's successful acquisition of O&Y Properties, which earned $6.4 million in the first quarter, down from $7.8 million in the same period last year.

O&Y Properties acquired First Canadian Place from bondholders who took over the office tower after the Olympia & York bankruptcy, triggered by huge debts incurred to build the Canary Wharf office development in east London.

Philip Reichmann said Wednesday he's not sure what his next project will be. "I'll probably take a couple of months off, and when I'm bored and restless enough, I'll figure something out," he said.

Brookfield Properties Corp.(TSX:BPO - news) develops and manages premier North American office properties including the World Financial Center in New York and BCE Place in Toronto.

On Wednesday, Dominion Bond Rating Service confirmed Brookfield's debt rating at BBB-high, saying the deal is not expected to have a significant impact on the company's financial profile.

DBRS said the property portfolio will continue to have high occupancy rates with few leases expiring in the next few years.

 

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Brookfield's $2B offer for O&Y hits investor snag
REIT unitholders want more cash
Garry Marr
8 June 2005
National Post

Brookfield Properties Corp.'s $2-billion offer for O&Y Properties Corp. and its subsidiary is facing opposition, with some investors claiming they want more cash.

The deal, one of the largest real estate transactions in Canadian history, was made public last week. It calls for shareholders of O&Y Properties to get $13 a share in cash, with unitholders of subsidiary O&Y Real Estate Investment Trust getting $15.50 per unit in cash.

While the corporation's shareholders appear happy with the deal, momentum is building among unitholders of the REIT for more cash. O&Y Corp. owns 42% of the trust but for the deal to go through a majority of the minority shareholders of the REIT must approve the transaction.

The largest institutional shareholder of O&Y REIT indicated yesterday it is unhappy with the offer and noted some analysts had placed the value of the REIT as high as $17 a unit before the offer was announced. T. Ritson Ferguson, chief investment officer at ING Clarion Real Estate Securities, which controls about 4% of outstanding units, said he has spoken to Philip Reichmann, chief executive of O&Y REIT, and expressed his concerns.

"We told him the price was too low," said Mr. Ferguson. "We had an expectation of it being sold at a higher price."

If unitholders of the REIT were to reject the deal it could scuttle the entire transaction or at least force it to be reworked. The current offer is for all of the outstanding shares of each company and is contingent on both going through.

The offer was made through Brookfield's 89% subsidiary BPO Properties Ltd. in conjunction with institutional investors that include the Canada Pension Plan Investment Board.

O&Y hired independent financial advisors for the deal that included a two-stage bidding process that initially saw about 50 groups come forward and request information on the property portfolio. O&Y and its affiliate REIT together own 9.7 million square feet of space across the country. The real estate includes First Canadian Place, a 2.7 million square foot tower in the heart of Toronto's financial district that is considered one of the country's most valuable properties.

On Monday, the deal was dealt a blow from Canaccord Capital analyst Shant Poladian, who questioned why unitholders would want to tender ar $15.50.

"[The offer] is a fair price but not a great price," said Mr. Poladian, in a report. "While we are not vehemently opposed to the offer, and we do see several instances where investors should consider tendering, we do not see this offer as an unequivocally great deal for public unitholders."

Mr. Poladian also indicated another key consideration will be the tax liability unitholders will face from the deal. That won't be known until a proxy circular is filed sometime this month.

Rossa O'Reilly, an analyst with CIBC , issued a report last week and noted that the bid fell short of the $16 per unit target price he had set. Nevertheless, he characterized the deal as fair.

"We view the offer as essentially fair to both buyers and seller in the context of the current strong property investment markets and, given the terms and the extensive process undertaken to ensure the best possible price was achieved, we believe unitholders should and will accept," said Mr. O'Reilly.

O&Y's Mr. Reichmann feels very confident that this transaction will go through. "I think in the end everyone is going to vote in favour of this. The overall reaction has been positive for sure," he said, indicating some institutional REIT unitholders have expressed concern on price.

"They've asked, 'Is it enough of a premium' -- and we say, 'Yes it is.' You have to decide, Mr. Unitholder, where will the REITs be six months or a year from now [if the deal doesn't go through]?"