OMERS to sell 'good chunk' of holdings

Sky-high real estate prices and a desire to diversify are driving one of Canada's largest pension funds to sell selected parts of its portfolio in a deal that could climb into the billions of dollars.

The Ontario Municipal Employees Retirement Board is in the final stages of negotiating a partnership to sell a 50-per-cent interest in some of its prime commercial real estate holdings, the head of the pension fund confirmed yesterday.

"It's not a surprise that we have been looking at selling a good chunk of real estate," said Paul Haggis, OMERS chief executive officer.

"We are getting very close to announcing a transaction to sell a big whack of real estate that would be on the scale of O&Y," he said, referring to the large office building portfolio of the Reichmann family. Final bidding on the O&Y portfolio closed last week and is expected to top $2-billion.

Industry sources familiar with the proposed deal say that the partner is the massive CPP Investment Board, the federal agency charged with investing funds under the Canada Pension Plan. The board held $77.2-billion in assets in its fund at the end of 2004, but expects to have $160-billion under management by 2012. It has set a long-range target of 5 per cent of that total for real estate and infrastructure investments. Ian Dale, a spokesman for the CPP Investment Board, said he could not comment on the matter. "We do not talk on speculation," he said.

Mr. Haggis cautioned that a firm deal has not been reached and would not discuss details of the transaction. He said it would not be for the pension fund's entire portfolio.

OMERS, which bought the portfolio of Canadian real estate heavyweight Oxford Properties in 2001, valued its real estate holdings at $6.9-billion at the end of last year. Its massive real estate holdings of 91 properties include Toronto's landmark Royal Bank Plaza as well as several other office towers. It also holds some of the best-performing shopping centre properties in Canada.

John Macdonald, executive vice-president at Oxford Properties Group, said 95 per cent of its holdings are in Canada. He said Oxford wants to diversify its investments over the next three to five years by directing a greater portion of its assets to international properties. "You do get to a certain size where good portfolio management has you needing to diversify the portfolio. We've gotten to that size in Canada," he said.

Mr. Macdonald would not comment on the possibility of a sale.

Last month, Oxford hired Christopher Voutsinas to lead its global investment team. Mr. Voutsinas, a Canadian, most recently worked for Deutsche Bank in London.
The move by OMERS beyond Canada follows the lead of other major pension funds such as the Caisse de dépôt et placement du Québec, which have invested heavily in foreign real estate markets.

Those familiar with the proposed OMERS transaction say while the pension fund would sell a part interest in certain properties, it would generate additional fees for property management on the buildings.

With prime properties attracting record prices, OMERS would be the latest Canadian landlord to decide the time is right for some profit-taking.

Earlier this year, O&Y Properties Corp. and its related income trust went on the block. Last year, the Caisse sold a 50-per-cent interest in six retail properties held by its Ivanhoe Cambridge unit to German investors. As well, several private real estate firms have sold selected properties to foreign buyers and Canadian pension funds. Industry leaders expect that with prices at current levels and high buyer interest, the supply of properties for sale is likely to increase this year.