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IGM Financial, GWL set to buy Montreal office towers -sources

| MONTREAL

MONTREAL Nov 21 Investors Group and GWL Realty Advisors are set to buy two Montreal office buildings from Germany's KanAm Grund Group for around C$415 million ($308.99 million), though the transaction has not been finalized, two sources familiar with the deal said.

Investors Group is part of IGM Financial Inc while GWL is part of Great-West Lifeco Inc. Power Financial Corp is the controlling shareholder of both companies. Power Corp of Canada in turn controls Power Financial.

The buildings are expected to be sold at a low capitalization rate for the Montreal market, indicating that demand for high-quality office buildings is spilling over from Toronto and Vancouver.

The potential sale of the office towers was reported on Friday by Reuters.

Power Corp spokesman Stephane Lemay referred a reporter's query directly to Winnipeg-based Investors Group which declined to comment. GWL Realty in Toronto and KanAm could not immediately be reached for comment.

The deal should close before year's end, said the sources, who spoke on condition of anonymity because terms of the transaction have not been made public.

The downtown buildings are expected to be sold at a capitalization rate of just over 5 percent, which is indicative of a premium asset, said the sources.

Capitalization rates are calculated by dividing an asset's net operating income by its market price.

According to recent data from Colliers International, Montreal cap rates for Class A buildings range from 5.50 percent to 6.25 percent.

"It (a 5 cap) is unusual for the city," said a third source familiar with both the deal and the Montreal commercial real estate market, who declined to comment because the transaction is not yet public.

According to data from CBRE Ltd, Montreal's third quarter downtown vacancy rate was 11 percent, compared with 10.6 percent for downtown markets in Canada as a whole.

KanAm, which owns real estate assets in Europe, North America and Australia, acquired the buildings at 1350-1360 René-Lévesque West, in 2007 and 2008.

The nearly 1 million square-foot property is managed by Canderel Inc, a Canadian real estate developer. Tenants include IT services providers CGI Group, Computer Sciences Canada, IBM and TD Bank, according to its website.

Real estate services firm JLL, which is selling the properties, declined to comment.

($1 = 1.3431 Canadian dollars) (Reporting by Allison Lampert; Editing by Andrew Hay)

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