Trizec Corporation Ltd.
Trizec Corporation Ltd.
855-2 Street SW
Calgary, Alberta T2P 4J7
(403) 263 7120
Fax: (403) 265 7301
Assets: C$1.23 billion (US$920.60 million)
Stock Exchanges: Toronto
Trizec Corporation Ltd. is a leading Canadian property development company, with approximately 160 income properties comprising about 75 million square feet of office and retail space spread across North America. Trizec also owns eight hotels and a 70 percent stake in Bramalea Ltd., the Toronto-based property development company with a $5 billion office and retail portfolio in Ontario and California. Its other holdings include full control of nursing home chain Central Park Lodge; 100 percent ownership of the Hahn Company, the U.S. shopping center developer with 50 retail sites; and a 23 percent stake in the Rouse Company, the U.S. publicly listed development company with $1.85 billion in assets.
Trizec was founded in 1960 by William Zeckendorf, one of North America’s most colorful property developers of the postwar era. Born in 1905 in Paris, Illinois, Zeckendorf worked in his father’s general store and then attended New York University. Before acquiring a degree, however, Zeckendorf dropped out of school and took a job as a real estate agent in New York City, where he worked for 13 years.
Then, in 1938, Zeckendorf went to work for Webb & Knapp, a New York City real estate firm. There he managed Vincent Astor’s $50 million property portfolio while Astor served in the navy. Before long, Zeckendorf added $5 million in assets to the Astor portfolio, securing for himself a reward check in the amount of $350,000 and requesting that Webb & Knapp “send him a bunch of flowers.” The real estate company did more than that; when Zeckendorf offered to buy the company, Webb & Knapp assented.
In 1946, Zeckendorf sold 17 acres of land on New York’s east side to John D. Rockefeller for what would eventually become the site of the United Nations Building. In 1953, the wealthy businessman, whose empire had grown to $300 million in assets, bought a group of buildings in New York City, including the Chrysler Building, an art deco landmark on Lexington Avenue. Soon Zeckendorf began redeveloping property in downtown Denver, Washington, and Chicago.
In 1956, he turned to the Place Ville Marie development in Montreal, which Zeckendorf sought to model after New York’s Grand Central Station and Rockefeller Center. The development was ambitious: the $1.5 million project was to be built on 23 acres of land in downtown Montreal owned by the Canadian National Railway, the country’s major rail carrier. However, the development proved financially inviable, and too much time was spent looking for retail and commercial tenants for the complex. By 1960, Zeckendorf looked to outside partners to carry the development. Webb & Knapp (Canada) Ltd. formed a partnership, called Trizec Ltd., with Eagle Star Insurance, a British insurance company, and Eagle Star’s property arm Second Covent Garden Property. The name Trizec in fact combined “Tri”, for three, “Z” for Zeckendorf, “E” for Eagle Star, and “C” for Covent Garden.
Zeckendorf originally held a 50 percent stake in Trizec. But, in 1963, Webb & Knapp backed out of the Montreal development, and Eagle Star stepped in for Zeckendorf to take a larger share of Trizec for itself. By 1965, Zeckendorf’s empire began to crumble as Webb & Knapp was put into U.S. bankruptcy court. That forced Zeckendorf from the head of Trizec, and he was replaced that year by James Soden, a Montreal lawyer. Joined by Bill Hay, another Toronto lawyer, the two built Trizec up through acquisition and construction of properties in Toronto.
By 1968, Trizec had become Canada’s largest publicly owned real estate company, with assets of $241 million. That portfolio was up from assets worth $179 million a year earlier. Chief among those assets were several suburban shopping malls, including Yorkdale Plaza, a giant development in North Toronto.
In 1970, Trizec acquired Cummings Properties Ltd, a Montreal-based property concern, with assets of $115 million. Cummings had formed a few joint ventures with Great West International Equities Ltd., founded by Calgary developer Sam Hashman. Trizec moved quickly to take control of Great West, and because Edward and Peter Bronfman maintained a large interest in Hashman’s dealings, the two brothers were brought onto the Trizec board, and given nine percent of the property company’s equity.
Brothers Edward and Peter were the nephews of Sam Bronfman, founder of the mighty Seagram liquor empire. While much of the Bronfman inheritance had gone to older brothers Edgar and Charles, Edward and Peter Bronfman hired well-known Touche Ross investment analysts Trevor Eyton and Jack Cockwell to join their organization, Edper Investments, in 1969. Together, Eyton and Cockwell would build Edper Investments into a labyrinth of crossholdings among Canada’s largest corporations.
Property was to figure prominently in the Edper empire. Trizec had been expanding into the U.S. property market through Trizec’s 51 percent owned subsidiary, Tristar Developments Inc. But, in 1975, Peter Bronfman asked James Soden of Trizec whether the company would consider allowing Edper to ’ ’Cana-dianize” Trizec. While Eagle Insurance of Britain still held a majority stake in Trizec, it had become concerned with the Canadian government’s Foreign Investment Review Agency (FIRA), introduced in 1974, to regulate overseas investment. The British insurer feared FIRA would make raising money in Canada difficult for foreign companies. So Edper offered to leave Eagle Star with a controlling interest in Trizec, while effective control would move to a new holding company, Carena Properties, in the Edper camp.
The deal was concluded, and in 1976 the Bronfmans took control of Trizec, moving quickly to depose Soden from the company boardroom. Shortly thereafter Soden was fired, and Bill Hay left the company to join Olympia & York, then controlled by the Reichmann brothers, rival Canadian property developers. Edper appointed Harold Milavsky, who had come up through the Hashman empire, to replace Soden as president and chief executive of Trizec. Milavsky, an Alberta executive, would eventually see the move of Trizec’s head office to Calgary, away from Montreal, because he preferred to live in the oil city where he had most of his business contacts.
By 1979, Trizec’s assets surpassed the $1 billion mark. The company had become so strong that in January of that year the Reichmann brothers considered Trizec a possible takeover target. That month, brothers Paul and Albert Reichmann visited the offices of English Property, in which Eagle Star held a 21 percent stake, and met with executive Stanley Honeyman. They were informed that for the right price Honeyman might sell them English Property.
A bidding war for English property ensued between Olympia & York, NV Beleggingsmaatschppij Wereldhave—a Dutch real estate company—and Eagle Star Insurance. Having worked hard to build Trizec up, the Bronfman brothers feared that the Reichmanns were looking to take the company away from them by buying English Property. Edper therefore considered Olympia & York’s interest in English Property unfriendly. By February 22, 1979, the Reichmanns had paid for 7.6 million shares in English Property and launched a 50 pence per share bid for all remaining shares. Eagle Star had already tendered to the Reichmanns their 21 percent stake in the company.
The Bronfmans encouraged the Dutch real estate company to offer 56 pence per share for all outstanding English Property shares. The Reichmanns responded by upping their bid to 60 pence per share and announced “... it is not Trizec we are bidding for but English Property.” While Olympia & York let the current arrangements between Edper and Trizec stand, the Bronfmans were not consoled. In March, Edper prepared plans to enter the bidding war for English Property, which by now had driven up the price of shares on the London stock market above the Reichmann’s 60 pence per share offer.
According to one account, Trevor Eyton and Harold Milavsky were dispatched to London, and while seated in their hotel lobby, they saw Paul Reichmann enter the hotel to check in. The two Edper executives walked over to greet Reichmann, who in turn suggested that they might sit down and talk. Ten minutes later, the three men reached a general agreement on how Trizec would be run, an arrangement that would be finalized a week later in Montreal. The agreement stipulated that the Bronfmans would not challenge Olympia & York’s bid for English Property, and the Reichmanns would in turn allow Edper to increase its stake in Trizec. Moreover, Olympia & York and Trizec agreed to avoid conflicts of interest between Canada’s two largest property development concerns. Thus, two families gained control of Trizec, with the Reichmanns and the Bronfman brothers receiving an equal 37 percent stake in the property company.
In November 1980, Trizec completed its acquisition of Ernest W. Hahn Inc. Paying $267 million for the regional shopping center developer and owner, Trizec financed the purchase by a mixture of equity and debt, including a note of $88 million issued to Hahn shareholders. With the Hahn acquisition, Trizec’s own asset base rose to the $2 billion mark. That year the developer completed $ 113 million worth of new property construction, most in western Canada and the southwestern United States. Furthermore, most Trizec properties were located in prime downtown sites in major North American cities.
In 1981, the company bought 20.5 percent of the common shares belonging to The Rouse Company of Columbia, Maryland. Rouse, like Hahn, developed shopping centers and specialty retail centers, most in the eastern part of the United States. That year, Trizec reported more than $700 million worth of property scheduled for completion in the next 24 months, as well as $1.5 billion worth of developments to come onboard by 1986. This growth was important because shareholders measured the worth of property companies by the rental income they derived from properties they own or manage. Therefore the more developments they have in the works, the more income shareholders can expect from the company’s asset portfolio, providing a potentially stable growing source of cash flow from ongoing leases and renewals.
In June 1982, on the steps of Place Ville Marie, Trizec celebrated the 20th anniversary of the downtown Montreal office complex that prompted the formation of the company. By the following year, the Rouse and Hahn stock acquisitions had ensured that 82 percent of Trizec’s rentable properties were in the U.S. market. Nevertheless, the company did not neglect the Canadian market, and in 1983 Trizec bought a further 50 percent interest in Lougheed Mall in Burnaby, just outside Vancouver, British Columbia. This purchase took the company to full ownership of the shopping mall. At the same time, Trizec sold its 50 percent stake in Brentwood Mall, also in Burnaby. In August of that year, Trizec sold its mobile home division and bought three nursing homes in Philadelphia, bringing tenant capacity in Central Park Lodges, its nursing home division, to 4,930 people.
The mid-1980s brought an improved economic climate for Trizec. In the company’s 1983 annual report, President Milavsky commented: “We are experiencing a gradual return to economic health in 1984. Trizec enters 1984 having established itself as the premier public real estate company with the largest portfolio of income producing properties in North America.”
In 1985, Trizec expanded by increasing its interest in rival Canadian property developer Bramalea Ltd. to 31 percent, with an option from a major shareholder to increase that stake to 43 percent. For shareholders, the purchase meant gaining an impressive one-third stake in a rival property developer with more than $2 billion worth of assets in its portfolio. Specifically, Bramalea’s assets included more than 20 million square feet of retail, commercial, and industrial real estate in 95 buildings across North America. In addition, Bramalea was also a community developer, home builder and, through Coseka Resources Ltd., had oil and gas interests.
In the company’s 1985 annual report, Milavsky warned shareholders that major urban centers in North America were “overbuilt,” and that Trizec would have to be aggressive in pursuing specific opportunities. By 1986, Trizec’s own asset base had topped $4 billion, with investments in more than 136 properties across North America. Among the company’s developments that year were a retail center in Escondido, California, and two office buildings and the Horton Plaza in San Diego.
During this time, Trizec exercised its option to increase its stake in rival Bramalea to 43 percent. And by November of that year, Trizec had gained control of Bramalea by pushing its ownership stake to 65 percent. This prompted both companies to combine their retail assets in a new entity, Trilea Centers Inc. Trilea would own and operate 28 shopping centers across Canada comprising in total 13.4 million square feet.
Trizec also expanded on the residential real estate front. Adding Florida Life Care Corporation of Sarasota, Florida, to its portfolio, Trizec moved beyond operating homes for senior citizens to providing rental accommodation and housing as well.
Unprecedented expansion was facilitated when Trizec completed an issue of $100 million of preferred shares, bumping up its shareholders equity to $1 billion on a book basis, a measure of the company’s asset base. In 1987, an additional $100 million preferred share issue was completed, as was an issue of ordinary shares worth $171.25 million, bringing shareholders’ equity to $1.1 billion on a book value basis. The company’s market capitalization at the time reached $3 million.
That year Trizec announced plans to build the Bay-Adelaide Financial Center in a 50-50 joint venture with Markborough Properties, a development with office and retail rental properties. Furthermore, in July 1988, Trizec’s interest in Bramalea was raised to 70 percent after a purchase of 3.65 million Bramalea shares. The company opened eight new developments that year—three office buildings and five retail shopping centers, comprising 3.5 million square feet.
However, while Trizec was enjoying unprecedented property development and rental income growth, the Canadian economy was heading for a severe recession. By 1990, decreased consumer spending had affected retail sales, which reflected on Trilea’s shopping center performance. Furthermore, rising operating costs and competition in the senior citizens’ housing market undercut margins in that industry for Trizec, while reduced housing prices owing to recessionary pressures affected housing sales for the company.
The threat of too much commercial and retail space coming on the market, creating a buyer’s market in which rents plunged, loomed large. Nevertheless, Trizec company chairperson Milavsky remarked in the company’s 1991 annual report: “Our office portfolio continued to generate stable cash flow, although several new properties, which are still in the lease-up stage, were added to the rental stream during the year.”
As a result of the difficult economic climate, construction work on the joint venture Bay-Adelaide Center was delayed until late 1994, as a glut of space in Toronto’s financial district dramatically undercut leasing of the project. In the interim, a development that was to become the centerpiece of Trizec’s Toronto property holdings remained little more than a multilevel parking lot.
In 1991, Trizec sought to strengthen its balance sheet by reducing its overhanging debt levels. Plans included selling nonstrategic property holdings and reducing land holdings. However, the company looked to sell into a buyer’s market, where prices for property, especially in the Toronto and New York markets, were falling steadily. Trizec also looked to streamline its own operations to reduce business overheads. It announced it would delay new developments until market conditions improved and current projects had a chance to contribute to cash flow, rather producing a drain on the company’s profit line. In addition, asset sales were made to reduce the company’s debt, and in September 1992, Trizec sold 9.5 million of the 11 million shares it held in The Rouse Company to U.S. investors for around $140 million.
Of particular concern to the Trizec board was the failing fortunes of subsidiary Bramalea. For the first six months of 1992, rental income for Trizec, excluding Bramalea, was up three percent to $683.7 million, compared with $664.3 million in the same period a year earlier. But Bramalea, in the same period, posted a loss of $34 million in its rental income, and a negative cash flow of $22.3 million. In addition, Trizec had to make well-time asset purchases of Bramalea to prevent it from falling into the bankruptcy court, a move that required extra borrowing.
Milavsky commented in September 1992: “In addition to the ongoing challenge of maintaining profitability during these uncertain times, considerable time has been devoted to supporting Bramalea with its restructuring efforts. We continue to believe that a consensual restructuring of Bramalea is in the interest of shareholders, bringing about greater stability and the opportunity to share in renewed growth in the years ahead.”
By the end of 1992, Trizec’s own $5.1 billion debt load prompted the departure of Milavsky after 16 years at the company helm. He was replaced by Willard L’Heureux, who became Trizec president as well as co-chief executive officer. He would act in that position alongside existing CEO Kevin Benson.
In addition, Trizec’s boardroom was completely revamped. The number of board members was cut from 25 to 16. Furthermore, another seven board members belonging to the insolvent Olympia & York Developments Ltd. departed. That company’s 36 percent stake in Trizec would go to a cluster of international banks whose loans to O&Y were secured by Trizec shares. Also in December 1992, Trizec announced a $669 million writedown on its investments in Bramalea.
Writedowns figured large in Trizec’s profit line. Rental income in 1992 was posted at $419 million, up slightly from $415 million the year before. But the company provided $175 million for losses on its undeveloped properties, reflecting the steep fall in property values during the recession. That, and its Bramalea writedown, produced a loss for 1992 of $544 million, against a profit of $62 million a year earlier.
Trizec’s stock price continued to fall from a high of nearly $28 a share in 1989 to $1.80 currently. Analysts speculate that resolving Trizec’s problems will depend on management’s ability to solve the company’s outstanding problems and the banking community’s return to providing loans to property companies. Trizec faces $2.39 billion worth of debt maturing over the next three years. That figure will need to be refinanced, and the company’s scramble for cash will be difficult at a time when international banks are taking a hard line on real estate lending after the O&Y debacle.
If Trizec finds it too difficult to sell assets in a buyer’s market, the company will have little alternative but to open talks with its creditors to restructure its debt. In March 1993, Trizec sold its remaining 1.5 million shares in The Rouse Company for $24 million. Trizec also faced $56.6 million worth of Swiss franc debentures coming due in October 1993 and $149.9 million worth of preferred shares due to be redeemed by the end of the year. Like Bramalea, Trizec may propose to defer or reduce the financial pressure of these payments. Then the company’s shareholders and creditors will know whether Trizec’s financial problems are insurmountable or whether continuing rental income and asset sales can provide help it stay afloat.
Trizec Equities Ltd.; Trilea Centres Inc.
Peter Foster, The Master Builders, Toronto: Penguin, 1986.
“Trizec Asking Lenders for ’Half a Chance’,” Globe and Mail, February 26, 1993.
“Trizec Changed, Problems Persist,” Globe and Mail, March 31, 1993.
“Trizec’s Debt Troubles Prompt Shuffle,” Globe and Mail, February 5, 1993.