MANITOBA Public Insurance has purchased cityplace for $80.5 million, acquiring ownership of what will effectively become its head office building.
The deal also takes a big piece of debt off the books of the company selling the landmark building.
The provincial Crown corporation already occupies close to 80 per cent of the nine-storey office building's 337,000 square feet of space and Marilyn McLaren, MPI's chief executive officer, said the purchase gives it greater flexibility to expand, if necessary.
"We are very pleased with the deal," she said.
"This is less than half the price it would have cost us to either move to another space or develop a new building."
MPI has leased offices in the former Eaton's warehouse since 1980, gradually increasing its presence there over the years.
The provincial auto insurer has about 1,000 people in the Donald Street location, including a large call centre, finance, accounting, information technology, administration and executive offices.
MPI is buying the building from the cash-strapped Winnipeg real estate investment trust, Huntingdon REIT.
Arni Thorsteinson, CEO of Huntingdon, said the deal helps the company in its efforts to pay down some of its debt.
"The flavour of the day is de-leveraging," Thorsteinson said. "This is in accordance with our business plan for 2009 to pursue asset sales to pay down debt."
The deal is to close on May 1 and will reduce the REIT's debt load by 20 per cent to $322 million.
Last July, Huntingdon hired RBC Capital Markets to help it find a buyer or a merger partner.
In October, it called off that process, suspended distributions and has focused instead on divesting some of its 77 properties across Western Canada.
Huntingdon's units have fallen in the last year to 17.5 cents from $2.20 where it closed unchanged on Thursday.
The cityplace deal was announced after the close of trading.
Thorsteinson said the cityplace deal arose when Huntingdon and MPI could not agree on lease renewal rates.
"The primary purpose for this acquisition is to occupy the building, not as an investment property," McLaren said.
"This will give us better control of our operating expenses. It will stabilize our costs and allow us to better stabilize our rates for our ratepayers."
MPI's investment portfolio is worth about $2 billion, but does not currently contain any real estate holdings.
One Winnipeg real estate professional who focuses on investment properties said if this deal was to kickstart MPI's entrance into real estate investing, it would be a positive move for the local market.
Thorsteinson said the building is 100 per cent occupied, including about 115,000 square feet of retail space on the main floor and mezzanine.
This will be the building's fourth owner in the last 10 years. Osmington Inc., a privately owned Toronto-based real estate company, paid $35 million for Eaton Place, as it was then called, in 1998.
Osmington sold it to Israeli investors in 2003 for an undisclosed sum and Huntingdon acquired it for $75 million in 2005.