* Unsolicited bid offers 12.8 pct premium to Tuesday's close
* Move comes as U.S. retailers look to expand in Canada
* Primaris' unit price surges on the TSX
* Primaris urges unitholders to sit tight act on offer
(Adds background, analyst comment; updates share price move)
By Euan Rocha
TORONTO, Dec 5 A consortium led by Canada's
KingSett Capital will offer about C$2.6 billion ($2.62 billion)
to acquire Primaris Retail REIT to bolster its
portfolio of Canadian shopping malls at a time when U.S.
retailers are looking to expand northward.
The unsolicited offer, announced by the private equity firm
on Wednesday, would give KingSett control of mid-market retail
centers in major cities across Canada and dominant shopping
malls in secondary cities. The Ontario Pension Board is one of
the consortium's members.
The consortium, which includes the Ontario Pension Board, is
set to make a cash bid worth C$26 per unit. The offer represents
a premium of 12.8 percent to Primaris Real Estate Investment
Trust's Tuesday closing price of C$23.04 on the Toronto Stock
Exchange. Including the assumption of debt, the transaction is
valued at about C$4.4 billion.
Primaris units, which previously touched an all-time high of
C$24.93 in August on the TSX, surged about 15 percent to C$26.50
in early trading, indicating that investors were expecting a
sweetened offer or rival bid to emerge.
Volumes in the typically thinly traded units surged more
than 60 times above average and Primaris was the most actively
traded name on the TSX, with its units closing C$3.36 higher at
C$26.40 on Wednesday.
"This is round one of the negotiations," said Raymond James
analyst Ken Avalos, who advised unitholders to hold out for a
bid of C$28 or higher.
The offer comes as U.S. retailers, looking to expand into
Canada, vie for prime real estate assets. Last year, Target Corp
, the second-largest U.S. discounter, agreed to take over
Canadian leases for some Zellers stores owned by Hudson's Bay Co
in a deal worth some C$1.8 billion.
RioCan Real Estate Investment Trust, Canada's largest REIT,
last year signed a C$1 billion joint venture to develop outlet
malls in Canada with U.S.-based Tanger Factory Outlet Centers.
The KingSett proposal is supported by a C$1.1 billion side
deal with RioCan, which has agreed to buy some of the Primaris
assets after the close of the proposed transaction.
"We are not surprised to see the REIT in play, nor to see
RioCan participating in the transaction, as it has been
selectively increasing its exposure to fashion/malls ahead of
Target coming to Canada next year," said BMO analysts Karine
MacIndoe and Pauline Alimchandani in a note to clients.
KingSett, which focuses its investments on real estate, said
the deal has the support of Alberta Investment Management Corp,
Ivanhoé Cambridge and other top Canadian institutional investors
that are invested in its funds.
"This is a strong and compelling offer, providing unit
holders with a premium price at a time of peak valuations in the
sector," said Jon Love, KingSett's managing partner.
Love said he met with Primaris CEO John Morrison on Tuesday
night and informed him of KingSett's plan to make an offer to
unitholders of Primaris. Love declined to provide any details of
Morrison's response to the offer, but described the meeting as
"This is a very large transaction and there were a number of
parties at the table and going directly to unitholders was
simply the most effective and practical way forward," said Love,
who formerly headed Oxford Properties from which Primaris traces
Primaris, in a brief statement, strongly advised its unit
holders to take no action at this time, as it has yet to receive
a formal offer. The REIT said its board and advisers would make
a recommendation after reviewing an offer.
"Real estate has had a nice run and we believe the price
offered is fair," the BMO analysts said, adding that a higher
price of about C$28 a unit may still be needed to get Primaris's
board to agree to a friendly deal.
Euro Pacific Canada analyst Rob Sutherland believes that
some U.S. such as Simon Property Group or General Growth
Properties may be compelled to take a look at Primaris.
"REIT portfolios of this magnitude so rarely come to market
that any entity thinking about moving into Canada will have to
look at this as a once in a decade opportunity," he said.
TARGET STORES EYED
Primaris, formed in 2003, owns more than 30 properties in
cities across Canada, including the Dufferin Mall in Toronto,
the Cornwall Centre in Regina, Saskatchewan, the Tecumseh Mall
in Windsor, Ontario, the Woodgrove Centre in Nanaimo, British
Columbia, and the Cornwall Centre in Regina, Saskatchewan.
Its tenant list includes household names such as Hudson's
Bay, Canadian Tire, Reitmans, Sears Canada
, Target, Shoppers Drug Mart Corp and others.
KingSett said it had secured the financing required to close
the proposed transaction and to provide for any post-closing
refinancing and liquidity requirements.
The firm said full details of the offer will be included in
a formal offer and take-over bid circular, which will be filed
with Canadian securities regulators in the coming days. The bid
will need the backing of at least two-thirds of the unitholders.
KingSett and its affiliates own about 6.88 million units of
Primaris, representing about 7 percent of issued and outstanding
units, making them one of the top unitholders in the company.
RioCan did not disclose the properties it is targeting in
the side deal but said it planned to acquire full control of six
and a 50 percent interest in two others.
Chris Damas, who owns positions in Canadian REITs like First
Capital Realty and Calloway, believes that
RioCan is aiming to acquire some of the Primaris properties that
will have Target locations on them.
"Let's face it, there is a horse race to get those Target
stores between them and Calloway and First Capital," said Damas.
Primaris owns about ten Zellers outlets that are now being
converted into Target stores. RioCan is already Target's biggest
landlord in Canada and last year RioCan's CEO said he hoped that
their relationship with the retailer would expand.
($1 = 0.9927 Canadian dollars)
(Reporting by Euan Rocha; Editing by Frank McGurty, Leslie
Gevirtz and Bernard Orr)