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The Bank of Nova Scotia's iconic red tower in downtown Toronto has been sold for $1.2 billion, the highest price ever paid for a Canadian office building.
After several months on the market and rumours of international buyers bidding aggressively, Canada's Dundee Real Estate Investment Trust partnered with H&R Real Estate Investment Trust to buy the tower.
The building will be two-thirds owned by Dundee, with H&R holding the remaining interest.
Scotiabank occupies about 61 percent of the building, with an average lease term of 13.5 years. The complex includes the main bank at King Street West and Bay Street in the heart of Toronto's financial district, as well as a few smaller structures on the same block.
All told, the complex consists of about two million square feet of space. The complex is 99.5 percent occupied, the bank said.
"With the addition of Scotia Plaza, the quality of our portfolio is the best it has ever been, the average cost of our debt is the lowest it has ever been and the cash generated per unit is the highest it has ever been," Dundee chief executive officer Michael Cooper said in a statement. "ScotiaPlaza is one of the most exceptional assets in Canada, by location, scale, physical condition and the strength of its tenants."
Scotia Plaza's tower, completed in 1988, is a postmodern landmark in Toronto's core. The red granite spire stands beside the corner of King and Bay Streets, in the heart of the city's financial district, and is one of the most sought-after business addresses in the country.
Scotiabank put the Bay Street tower up for sale in January. Faced with having to drum up more capital to backstop its lending operations to comply with new global banking regulations, the building was a way for Scotiabank to raise money without having to sell off core banking assets.
Though it was common in decades past for banks to own their headquarters, a series of real estate sales over the years left Scotiabank as the only of Canada's Big Six lenders to own its headquarters. An executive at the bank, which is Canada's third largest by assets, said Scotiabank decided to pursue the auction because it thought it could fetch a decent price in the market.
"Given market conditions, this was an opportune time to maximize the value from those holdings," Sabi Marwah, vice-chairman and chief operating officer at Scotiabank, said in a statement.
It is the second major asset sale by the bank in the past year. In January, Scotiabank sold its remaining 50-percent stake in Calgary's Scotia Centre, a 42-storey tower, for $140 million.
Scotiabank would not say Tuesday what impact the sale will have on the bank's capital levels. The bank reports second-quarter earnings on May 29, and will hold a conference call with analysts and investors on the same day.
The deal is expected to close by June 20, the bank said.