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Encana’s ‘Symbolic’ Move May Hurt Stake Sale in Iconic Bow Tower


By Michael Bellusci

(Bloomberg) The odds of H&R Real Estate Investment Trust selling a stake in its wholly-owned iconic Calgary tower has dropped after Encana Corp. announced plans to move its headquarters to the U.S, according to BMO Capital Markets.

The Bow’ tower, located in Canada’s corporate energy hub in downtown Calgary, houses the oil & gas driller as its largest tenant. Uncertainty surrounding Encana’s commitment to Calgary with its plans to move its headquarters stateside means “it is less likely that H&R will be able to sell a partial interest in The Bow at a value that management would find agreeable,” BMO analyst Jenny Ma said in an Oct. 31 report.

Energy Boom Continues in Calgary
The Bow Tower in Calgary in 2012.

Encana represents 11.9% of H&R’s rental income and its lease obligations expire in 2038, according to the REIT’s presentation as of June 30. Cenovus Energy, which was spun out of Encana, has a sublet of 27 floors. Pipeline giant TC Energy Corp., also located in downtown Calgary, generates 1.9% of H&R’s rental income.

H&R’s Chief Executive Officer Thomas Hofstedter said during its second-quarter earnings call in August (and before Encana’s announcement Thursday) that it was still considering the possibility of a partial sale of The Bow, and hopes to get clarity “before the year is out if we can actually execute on our plan.”

H&R’s management “confirmed that Encana must maintain its lease obligations through to the end of the term,” BMO’s Ma said, and re-domiciling is more of “symbolic blow to Calgary” and the city’s office market. The office vacancy rate in Calgary was 24.3% as of Sept. 30, as both the downtown (26.6% vacancy rate) and suburban areas (20.6%) are hurting, BMO added.



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