UPDATE 3-RioCan REIT, Tanger in C$1 bln joint venture

Mon Jan 24, 2011 5:00pm EST

* Properties to be co-owned on 50-50 basis

* Intention is to develop 10-15 Canadian outlet centers

* Deal latest involving U.S. companies entering Canada (Adds comments from RioCan COO, details)

By Pav Jordan and S. John Tilak

TORONTO, Jan 24 (Reuters) - RioCan Real Estate Investment Trust (REI_u.TO) announced plans on Monday for a C$1 billion ($1.01 billion) joint venture to develop outlet malls in Canada with U.S.-based Tanger Factory Outlet Centers (SKT.N).

The deal comes as U.S. companies, struggling with a weaker market at home, line up for retail space in Canada, which suffered less in the global recession. Top U.S. brand names are also seeking exposure in Canadian cities.

The plan follows a C$1.83 billion deal announced on Jan. 13 by U.S. retailer Target Corp (TGT.N) to take over Canadian leases for Zellers stores owned by Hudson's Bay Co, North America's oldest company. [ID:nN13272785]

The move was driven by demand from its U.S. customers, said Fred Waks, executive vice-president and chief operating officer at RioCan. "There is nothing like it right now in Canada."

The joint venture is looking at initial properties in the Greater Toronto Area, Calgary and Montreal, Waks said in an interview with Reuters.

In a statement, RioCan said this would be Canada's first portfolio of U.S.-style outlet centers.

As the Canadian dollar has strengthened against the greenback in recent years, more Canadian shoppers have crossed the U.S. border to take advantage of their increased buying power.

The agreement will see RioCan and Tanger acquire and lease sites across Canada and redevelop them into discount shopping malls in the image of Tanger Outlet Centers in the United States, which cater to brand-name and designer manufacturers.

RioCan, Canada's oldest and largest REIT, and Greensboro, North Carolina-based Tanger will co-own any projects they develop on a 50-50 basis.

A lot of U.S. retailers want to expand to Canada and they have existing relationships with Tanger, Edward Jones analyst John Sheehan said.

"If I was RioCan, I would want to have a partner who understands how this business works and has existing relationships with these retailers," Sheehan said.

Tanger, a publicly held real estate investment trust since 1993, operates or has ownership stakes in 33 outlet shopping centers in 22 states, leased to more than 2,100 stores.

Companies such as Saks SKS.N, Nordstrom (JWN.N), Ralph Lauren and Lord & Taylor have, or plan to have, outlet centers, Sheehan said.

New entrants to the Canadian market include Victoria's Secret, a unit of Limited Brands LTD.N which brought its sexy lingerie to the Toronto and Edmonton areas last year. Other U.S. retailers tipped to expand into Canada include Marshalls (TJX.N) and Dick's Sporting Goods (DKS.N).

U.S. retailers with a presence in Canada already include Wal-Mart (WMT.N), Home Depot (HD.N), Lowe's (LOW.N) and Best Buy (BBY.N). [ID:nN13214984]

RioCan outlined plans in October to spend C$600 million on acquisitions in the coming year, including C$150 million in Canada and C$450 million in the United States.

"It is the intention of the joint venture to develop as many as 10 to 15 outlet centers in larger urban markets and tourist areas across Canada, over a five- to seven-year period," the companies said in a joint statement.

Canada's largest independently owned commercial real estate services company, Avison Young, said in a recent report that retail properties were the most actively traded asset class in the country in the first nine months of 2010, and the ones with the greatest improvement over the same period a year before.

($1=$0.99 Canadian) (Editing by Peter Galloway)

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