National Post (National Edition)
Landlords game for Toy ‘R’ Us real estate
Canadian stores unlikely to close, RioCan says
The chief executive of Canada’s largest real estate investment trust says he’d have no problem filling any space vacated by Toys “R” Us, but he doubts it will reach the market. Ed Sonshine, whose RioCan REIT counts the retailer as a tenant in two of its facilities, said Tuesday there would be strong demand for the space because of the prime locations, a feeling echoed by others in the real estate community who say the Toys “R” Us footprint in Canada is much different than in the United States.
“We only have two of them, one of them in the Yonge and Eglinton Centre and, if they want to go, they can go,” said Sonshine, referring to the location at its head office in midtown Toronto.
The retailer has another location at a RioCan property in Ottawa.
“They are a very tiny tenant for us. My understanding — our head of leasing has spoken to them today — is that Canada is doing great and they have no intention of closing any stores here.”
Toys “R” Us Canada initiated bankruptcy proceedings in an Ontario court Tuesday, a day after the parent company filed for creditor protection in the U.S.
Sonshine sees the bankruptcy as more akin to what happened to Payless ShoeSource when it filed for protection this year.
“Payless went into Chapter 11, CCAA, and they never closed any stores in Canada. They sort of used it to deal with their debt in a sensible way and close a bunch of non-performing stores,” he said.
Avi Behar, chief executive of the Behar Group Inc. which worked to bring the first Toys “R” Us into Canada in the 1980s, said the chain’s locations are much different than Target’s spots.
“They just have great locations. Their rollout into Canada was very strategic at the time and a real winner,” said Behar, whose company is trying to track the variations in size of the retailer’s locations. “There are some bigger ones and smaller ones out there. The bigger ones have a Babies “R” Us in them.”
The bigger stores, at 40,000 square feet, might work for some, but as retailers continue to downsize models, the stores might have to be divided up, Behar said.
“In some of the more urban locations, the landlord might want the space back. Once you get into the outskirts, it’s a lot more challenging to backfill. Market rates over the past 10 to 15 years have been pretty good, but things are changing in retail,” he said.
Ross Moore, a senior vicepresident with real estate company Cresa, said some of the chain’s locations may have rents below market prices, but it will be nothing like the situation with older retailers such as Sears.
“The leases could have some value, but are far from straightforward. Keep in mind, any assignment would require the landlord’s permission and then you get into co-tenancy agreements etc.,” said Moore.
Either way, the impact on Canada’s publicly traded real estate companies will be negligible, said Neil Downey, managing director and real estate analyst with RBC Capital Markets.
“Canadian REIT exposure seems quite low,” said Downey, noting Smart Centres probably has a the biggest exposure to Toys “R” Us and the retailer is its 19th-largest tenant and accounts for only 0.9 per cent of revenue.