Jim Flaherty, the Canadian Finance Minister, says he is not concerned about the recent increase in businesses spinning off real estate holdings into tax-preferred trusts.
He stated recently, “We have seen an uptick in commercial real estate certainly in recent times, so in that sense, it doesn’t surprise me.”
Flaherty made the comments while attending a meeting of a Group of Seven finance officials recently. He went on to say, “As long as people play within the rules, we won’t need to intervene.”
In 2006, Flaherty did take action to stop companies from converting to high-yield income-trust securities to take advantage of existing tax rules. Real Estate Investment Trusts (REITs) were exempted the ruling, after Flaherty said they deserved to be placed in a different category.
He stated, “We did not eliminate REITs back in 2006 because they were not considered to be passive investment vehicles. They actually invest and reinvest in shopping malls and office buildings and various other things, so it’s not just a money flow-through to passive investors.”
On May 9, Canadian Tire announced that it would create a new real estate investment trust via an initial public offering (IPO) in the autumn. The move makes the corporation the eighth enterprise to sell or propose an IPO in 2013.
Loblaw Cos., the largest grocery chain in the country by market value, has announced plans to file regulatory documents to file a C$7 billion REIT this month. Retailers are using this strategy to raise capital from investors amid competition from U.S.-based companies like Target Corp.
Hudson’s Bay Co. is also looking at creating a REIT. The retailer, which was established in 1670, has announced that its plans are for “sometime in the future,” according to CEO Richard Baker.
Canadian REITs raised nearly C$500 million in seven IPOs in 2012, which is more than any other industry in the country. The Standard & Poor’s/TSX Capped REIT Index increased 165 per cent from a five-year low on March 9, 2009 to May 10. The S&P/TSX Composite Index rose 66 per cent during the same period.
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